How Multi-Institution Bitcoin Custody Could Have Prevented the Bybit Hack
Brian Cubellis | Chief Strategy Officer
· Updated
The $1.5 billion Bybit hack exploited vulnerabilities in Ethereum's smart contract-based multisig (Safe wallet), where attackers manipulated the contract logic itself rather than stealing keys. Bitcoin's native multisig operates at the protocol level with no smart contract attack surface, and multi-institution custody adds further protection by having independent institutions protect the Bitcoin, with two of three required to move it.
The Full Report
The full text of Preventing the Bybit Hack: Why Multi-Institution Custody Is the Key, first published by Onramp Research on March 20, 2025.
The $1.5 billion Bybit hack, perpetrated via a compromised Ethereum multisig wallet, exposes a fatal flaw in modern crypto custody: single-entity control. Whether through smart contract exploits (Bybit), operational malfeasance (FTX), or centralized key mismanagement (Mt. Gox), history proves that any system relying on a single counterparty will eventually fail.
Bitcoin’s native multi-signature architecture, combined with Onramp’s Multi-Institution Custody (MIC) framework, eliminates this systemic risk by distributing cryptographic keys across independent entities, ensuring no single custodian can unilaterally move or lose funds.
For individuals and institutions looking to secure bitcoin long term, MIC isn’t merely a best practice: it’s the only way to reliably eliminate single points of failure which often lead to the permanent loss of funds.
Anatomy of the Bybit Hack
The Attack Vector
- Smart Contract Exploit: Bybit used an Ethereum-based multisig wallet reliant on complex, upgradable smart contracts. Attackers injected malicious code into the wallet’s user interface (UI) and disguised unauthorized transactions as routine upgrades.
- UI/UX Deception: Signers at Bybit unknowingly approved a malicious contract update after seeing falsified transaction details in the compromised interface.
- Centralized Key Management: Although they utilized a form of “multisig,” Bybit controlled all the keys in-house. Once the attackers compromised Bybit’s transaction signing environment, they could manipulate the entire key signing quorum.
Lessons from a $1.5B Breach
- Smart Contract Attack Surface: Blockchains like Ethereum allow for sophisticated exploits (such as hidden “delegate calls”) unavailable in bitcoin’s more constrained scripting system.
- User Interface Spoofing: Even robust cryptography fails if an end user (or institutional signer) is tricked into authorizing transactions based on fraudulent UI prompts.
- “Multisig in Name Only”: Concentrating all signing power within one organization negates multisig’s advantage. Once the attacker infiltrated Bybit, they were able to effect control over the entire signing process.
Ethereum Multisig: Flexibility at a Cost
- Smart Contract Complexity: Ethereum multisig often involves proxy contracts, upgradability, and customizable logic, which can introduce hidden exploits.
- Dependency on UIs: Users commonly rely on proprietary front ends (e.g., Gnosis Safe in the case of the Bybit hack). A compromised UI can misrepresent transaction data to unsuspecting signers.
- Delegatecall Vulnerabilities: Attackers can redirect execution flow within these smart contracts, leading to entirely different runtime behaviors than what signers see.
Bitcoin Multisig: Protocol-Level Security
- Native Architecture: Bitcoin’s multisig is integrated directly at the protocol layer (OP_CHECKMULTISIG). Once set, it cannot be altered to run arbitrary code.
- Deterministic Execution: A 2-of-3 or 3-of-5 multisig transaction in bitcoin is straightforward; no hidden function calls or dynamic reassignments are possible.
- Independent Verification: Each cosigner can verify the transaction details (input, output, fee) through open-source bitcoin software. UI spoofing is far less potent because the final transaction structure is publicly verifiable on-chain.
This contrast underscores why bitcoin’s simpler, verifiable multisig architecture, when combined with multi-institution custody, prevents the very type of exploit that compromised Bybit. Bitcoin is the first and only asset with a distributed governance model embedded directly into its protocol, eliminating reliance on centralized institutions for security, transparency, and settlement. Unlike gold, which requires trust in single-entity custodians, bitcoin’s multisig architecture enables verifiable, decentralized ownership, ensuring that trust is minimized and security is structurally enforced.
The Fallacy of Single-Entity “Multisig”
Why Bybit’s Setup Failed
Although Bybit used a “2-of-3” signing threshold, all keys were effectively under one roof. This concentration of authority meant that once attackers compromised the signing environment, the advantages of the multisig arrangement were squandered.
The Broader Pattern of “Multisig in Name Only”
Bybit is not unique; while most high-profile digital asset custodians utilize multisig arrangements to secure bitcoin, they house all the keys internally. Without true independence of signers, a single point of failure persists:
- Shared Infrastructure: One developer machine or server infiltration can cascade across the entire signing quorum.
- Homogeneous UI: If all signers rely on the same compromised interface, they can be uniformly deceived.
- Lack of Third-Party Oversight: No external custodian or partner is available to verify unusual or large transfers.
Bybit’s exploit underscores a fundamental truth: as long as custody is concentrated within a single institution, catastrophic failures remain inevitable. The opaque nature of centralized custody means there is no way to fully assess or mitigate its operational security risks without undermining the very security model it purports to provide. Multi-Institution Custody (MIC) is the only logical path forward, distributing risk across independent entities to eliminate single points of failure.
Advantages of Multi-Institution Custody
Distributed Trust Model
Rather than centralizing all the keys of a multisig quorum, Onramp’s Multi-Institution Custody (MIC) framework arranges a 2-of-3 multisig setup across three independent entities. Each entity:
- Maintains distinct security protocols and oversight.
- Keeps private keys in separate geographic locations.
- Collaborates only when the end client initiates a legitimate transaction request.
This architecture ensures that even if one custodian is compromised, it cannot unilaterally sign away funds.
Protocol-Level Resilience
- Bitcoin-Native Multisig: Onramp’s custody relies on bitcoin’s native scripting functions (opcodes; OP_CHECKMULTISIG), devoid of smart contract logic to exploit.
- Independent Verification: Each custodian checks transaction data in a transparent manner. UI tampering with one signer’s interface is insufficient to compromise the entire quorum.
Aligning with Bitcoin’s Ethos
- No Single Point of Failure: Aligns with bitcoin’s decentralized design philosophy, which emphasizes distributing authority and control.
- Reduced Attack Surface: Attackers must breach multiple institutions simultaneously, each with unique security protocols, rather than just one environment.
- Clear Governance: Each transaction requires consensus from multiple parties, mitigating internal fraud and external hacks alike.
Historically speaking, institutional best practices have centered around "diversified custody": spreading assets across multiple single-entity custodians to hedge against failure. Yet, this approach inherently assumes and accepts the potential loss of 20-30% of client assets in the event of custodian insolvency or compromise.
MIC presents a superior alternative: rather than mitigating risk through fragmentation, it eliminates single-entity exposure entirely by distributing control across distinct, independent parties. Institutions no longer need to accept partial failure as an inevitability: secure custody can be achieved without compromise.
How MIC Would Have Prevented the Bybit Hack
1. Independent Custodial Entities
- Bybit’s Single-Custodian Weakness: A single developer environment was enough to compromise Bybit’s entire key setup.
- Onramp’s Advantage: At least two separate custodians must be compromised to move funds, making such an attack exponentially more difficult.
2. Immutable Bitcoin Multisig Scripts
- Bybit’s Upgradable Smart Contracts: Attacker code injection leveraged Ethereum’s “delegatecall” functionality to seize control.
- Onramp’s Bitcoin-Native Approach: A 2-of-3 bitcoin multisig script cannot be upgraded to malicious code; the parameters are fixed in the locking script itself.
3. Multi-Faceted Verification
- Bybit’s Uniform UI: All signers saw a manipulated interface showing doctored transaction details.
- Onramp’s Protocol Transparency: Each custodian independently verifies transaction inputs/outputs at the protocol level, and signers’ interface views cannot be spoofed.
Building Trust-Minimized Systems for a Hostile World
The Bybit hack exemplifies how complex smart contracts and centralized key management can unravel even well-intentioned security frameworks. In stark contrast, bitcoin’s native multisig, augmented by a multi-institution custody approach, minimizes attack surfaces by:
- Distributing control across distinct custodians.
- Leveraging transparent, protocol-level scripts.
- Eliminating single points of failure and avoiding “multisig in name only.”
As bitcoin becomes a cornerstone of global finance, trust-minimized custody stands out as a non-negotiable priority. The next generation of institutions to adopt this asset must embrace the core principles of bitcoin’s decentralized ethos, combining protocol-level security with robust institutional checks and balances. Onramp’s MIC model offers a blueprint for this future: no single entity can unilaterally compromise client assets, and no sophisticated exploit can bypass the fundamental guardrails built into the bitcoin protocol.
In a world where advanced persistent threats, from organized crime syndicates to nation-state hackers, are continually evolving, only custody solutions that remove centralized points of failure can truly stand the test of time. Bybit’s fate need not be repeated; the tools and models for secure, trust-minimized custody already exist, and they are native to bitcoin’s protocol.
Why Onramp
Onramp's multi-institution custody model is built on Bitcoin-native 2-of-3 multisig, where three independent institutions each secure a key offline. A transaction requires approval from at least two of the three key-holding institutions, each of which performs its own independent verification before signing. No single entity, including Onramp, has unilateral control over client assets.
This is the architecture that the Bybit hack proved the industry needs. To learn more about how multi-institution custody protects against the specific attack vectors that enabled the largest heist in financial history, contact Onramp's team.