PSBT Consolidation: A Failure-Oriented Analysis of Real-World Bitcoin Operations
Why multisig consolidation fails in production — and the invariants required to make it safe
Editor’s note:
This is a public technical note on PSBT-based UTXO consolidation.
It is written for infrastructure teams, multisig operators, custodians, and auditors.
It is not a product announcement.
PSBT Consolidation
A Failure-Oriented Analysis of Real-World Bitcoin Operations
Version: 1.0
Status: Public Technical Note
Audience: Bitcoin infrastructure teams, multisig operators, custodians, auditors
Abstract
Partially Signed Bitcoin Transactions (PSBTs) are widely adopted to coordinate multisignature Bitcoin spending while minimizing private-key exposure. However, UTXO consolidation performed via PSBT introduces a distinct and under-documented class of operational failures.
These failures do not originate in cryptography.
They emerge from process design, interface authority, and coordination breakdowns under real-world conditions.
This document enumerates those failure modes and specifies non-negotiable invariants required for safe PSBT-based consolidation at scale.
Scope and Definitions
PSBT Consolidation refers to any transaction whose primary purpose is to:
Reduce UTXO count
Reorganize wallet structure
Migrate funds between policy states
Prepare funds for future spending efficiency
This explicitly excludes:
Routine payments
Batched withdrawals
Policy-driven spending
Consolidation is treated here as a high-risk, non-reversible operation.
Incorrect Safety Assumption
PSBTs are often assumed to be “safe by default” because:
Signing is separated from construction
Keys remain offline
Multiple approvals are required
This assumption fails during consolidation because:
Transaction scope is large
Errors propagate across signers
Review complexity exceeds human reliability
Mempool conditions introduce time pressure
At this point, safety becomes systemic, not cryptographic.
Failure Mode: Interface-Derived Authority
Many consolidation failures originate from interface behavior rather than operator intent.Observed patterns include:
Dynamic UTXO selection abstracted away from signers
Automatic change output generation
Fee logic that mutates transaction structure after review
Implicit input or output reordering
These behaviors silently transfer authority from operators to software.
Once this occurs, the PSBT model no longer provides meaningful protection.
Failure Mode: Cross-Signer Desynchronization
In distributed signing environments:
Signers review transactions at different times
Using different tools
Under different assumptions
If a PSBT can be modified after partial signing, then:
Signatures do not imply shared understanding
Quorum becomes symbolic
Consensus is illusory
This failure mode is rarely detected before broadcast.
Failure Mode: Consolidation as a One-Way Door
Unlike routine transactions, consolidation errors:
Cannot be easily reversed
Affect future privacy and spendability
Increase long-term operational cost
Amplify blast radius
These costs compound invisibly and persist indefinitely.
Failure Mode: Custody Creep
Consolidation frequently becomes centralized because:
Coordination overhead is high
Responsibility diffuses
Convenience is prioritized
This leads to:
A single party assembling transactions
Others acting as passive signers
De facto custody without explicit mandate
This is a governance failure, not a technical one.
Failure Mode: Audit Breakdown
Post-incident analysis often fails due to:
Missing construction logs
Lack of UTXO selection rationale
Discarded intermediate PSBT states
Absence of immutable provenance records
As a result, organizations cannot reliably answer:
Who decided this transaction’s structure?
This undermines accountability and compliance.
Required Invariants for Safe Consolidation
Any PSBT consolidation process must enforce the following invariants by construction:
Deterministic Scope
Inputs and outputs are fixed before signing begins.Signer Symmetry
All signers review the same transaction representation.Interface Non-Authority
No interface may alter structure after review.Single-Purpose Execution
Consolidation is isolated from spending logic.Non-Custodial Assembly
No actor gains unilateral transaction authority.Immutable Logging
Every step is auditable and preserved.
Violation of any invariant renders the process unsafe.
Why These Failures Persist
These failures persist because:
They are low-frequency but high-impact
They evade happy-path testing
UX incentives favor flexibility
Accountability diffuses under scale
They are typically recognized only after exposure has already occurred.
Conclusion: Consolidation Is a Constraint Problem
PSBT consolidation safety does not emerge from:
Better user interfaces
Additional features
Operator training
It emerges from intentional limitation.
Systems that permit discretionary scope, silent mutation, or post-hoc rationalization will eventually fail.
Appendix A: Reference Implementation
Ωmega Pruner is a reference implementation designed to enforce the invariants described in this document.
It is:
Deterministic by design
PSBT-only
Single-purpose (consolidation only)
Non-custodial
Invariant-enforcing rather than feature-driven
Ωmega Pruner does not attempt to optimize for convenience.
It exists to make unsafe states unrepresentable.
The implementation is publicly available and may be evaluated as:
A standalone consolidation tool
An embedded engine within existing systems
A procedural reference for internal implementations
Intended Use
This document is intended to:
Inform internal technical reviews
Support audit and compliance discussions
Surface systemic operational risk
Frame consolidation as a governance issue
It is not a sales document.
License
MIT License
A reference implementation enforcing the invariants described above exists and is publicly available for those who wish to evaluate a concrete system.