What Are Partially Signed Bitcoin Transactions (PSBTs)?

Bitcoin is designed to be trustless and secure, but some types of transactions, like multisig and CoinJoin require collaboration between multiple parties or devices. This is where Partially Signed Bitcoin Transactions (PSBTs) come in.

Introduced in BIP 174, PSBTs are a standardized format for Bitcoin transactions that are not yet fully signed. They allow multiple signers to independently sign a transaction without exposing their private keys.

The result? Better interoperability, enhanced security, and more efficient multisig coordination.

Why do we need PSBTs?

Before PSBTs, coordinating multisig and other complex transactions was clunky and error-prone. Each wallet or software had its own way of handling unsigned transactions, leading to incompatibility issues. PSBT solved this by creating a universal format, making it easier for wallets, hardware devices, and coordinators to communicate securely and efficiently.

Key Use Cases for PSBTs:

• Multisig Transactions – Multiple parties sign a transaction separately before broadcasting it to the network - ideal for bigger organisations where there should be a certain amount of board members that agree on a transaction.
• Offline Signing – Cold storage wallets can sign a transaction without ever exposing private keys online. They then only transfer the signature.
• CoinJoin & Privacy Transactions – Participants can collaboratively sign transactions while preserving anonymity.
• Trustless Atomic Swaps – Enables secure asset exchanges across different blockchains without a third party.

How do PSBTs work?

A PSBT transaction contains all the information needed for signing, but it remains incomplete until the required signatures are added. Here’s a simplified breakdown:

1. Transaction Construction

   • A coordinator (or initiator) constructs the transaction and converts it into a PSBT file.
   • This file contains inputs, outputs, and metadata, but it is not yet signed.
   • A constructor can also be one of the parties who signs the transaction (as mostly the case in multisig transactions).

2. Signing Phase

   • Each participant signs the PSBT separately using their wallet.
   • Cold wallets can sign offline and pass the signed PSBT to an online device for broadcasting.

3. Finalization & Broadcasting

   • Once all required signatures are added, the transaction is finalized and broadcasted to the Bitcoin network.

Since private keys are never shared, the process remains trustless and secure.

Adoption of PSBT & Future Improvements

PSBT was introduced in Bitcoin Core 0.17.0 (2018) and has since been widely adopted by hardware wallets, multisig platforms, and privacy tools. However, work is ongoing to improve the PSBT standard.

Final Thoughts

• PSBT is a Bitcoin standard that simplifies multisig, CoinJoin, and offline signing
• PSBT increases wallet compatibility, allowing users to interact across different software and hardware