Setting Up a Multi-Sig Escrow with Privacy Features

A private multi-signature escrow combines the security of multi-party authorization with the confidentiality of privacy-preserving technologies. Unlike standard multi-sig wallets, where all transaction details are visible on-chain, private escrows use zero-knowledge proofs (ZKPs) or trusted execution environments (TEEs) to hide the escrowed amount, the involved parties, and the release conditions from public view. This is critical for business deals, OTC trades, or any agreement where financial terms must remain confidential until execution. Protocols like Aztec Network or zkSync's ZK Stack provide the foundational privacy layers for such constructions.

The core technical setup involves deploying a smart contract that acts as the escrow vault. This contract is programmed with a set of n authorized signers and a threshold m (e.g., 2-of-3) required to release funds. To add privacy, the contract's logic must verify a ZK-SNARK proof instead of checking plaintext conditions. For example, when a user deposits funds, they generate a cryptographic commitment (like a Pedersen commitment) to the amount. The contract stores only this commitment. Later, to release funds, a prover (one of the signers) must generate a proof demonstrating knowledge of a valid release authorization signed by m parties and the correct opening to the commitment, without revealing the signature details or the amount.

Here is a simplified conceptual interface for a private escrow contract using the Aztec.nr framework, which allows private function execution:

rustCopy
#[aztec(private)]
fn deposit(amount: Field, secret: Field) {
    // Create a private note commitment for the amount
    let note = PrivateNote::new(amount, secret, this_address());
    // The commitment is siloed and stored privately
    private_state.insert_note(note);
}

#[aztec(public)]
fn release_funds(release_proof: [Field; 8]) {
    // Verify the zero-knowledge proof for release authorization
    assert(this.verify_release_proof(release_proof));
    // If proof is valid, execute the public transfer
    context.msg_sender.transfer(released_amount);
}

The private function deposit creates a hidden note, while the public function release_funds only verifies a proof, keeping the logic and data private.

Key considerations for a secure implementation include key management for the signers, proof generation cost (which can be high on Ethereum L1), and auditability. While the transaction details are private, you can use viewing keys to grant selective read-access to auditors or counterparties. It's also advisable to use time-locks or dispute resolution mechanisms within the contract logic to prevent funds from being locked indefinitely. For production, consider leveraging audited privacy frameworks like Noir for circuit design or Manta Network for scalable private applications on Polkadot.

To deploy, you would typically: 1) Choose a privacy-enabled L2 like Aztec or a zkEVM, 2) Write and audit the escrow contract logic with ZKP verification, 3) Use a SDK (like aztec.js) for the frontend to generate proofs, and 4) Securely distribute signing keys to the participants. The main trade-off is between the strong privacy guarantees and the increased complexity and gas costs associated with proof generation and verification. However, for high-value, sensitive agreements, this setup provides a trust-minimized and confidential alternative to traditional, opaque escrow services.

Before writing any code, you must establish a secure development environment and understand the core components. You will need Node.js (v18 or later) and a package manager like npm or yarn. The primary tools are Hardhat or Foundry for smart contract development and testing, and OpenZeppelin Contracts for secure, audited base contracts. For privacy, we will integrate zk-SNARKs via the Semaphore protocol, which requires specific cryptographic libraries. Install these globally or initialize a new project: npm init -y followed by npm install --save-dev hardhat @openzeppelin/contracts.

The escrow's logic relies on two main smart contracts. First, a MultiSigWallet contract manages the funds and requires M-of-N approvals from designated signers before releasing assets. We will extend OpenZeppelin's AccessControl for this. Second, a PrivacyModule contract handles the zero-knowledge proof verification. This module will verify a Semaphore proof that confirms the transaction details are valid without revealing the sender's identity on-chain. These contracts will be deployed and linked, with the MultiSigWallet being the main entry point that calls the PrivacyModule for verification.

You must configure your Hardhat project for local testing and eventual deployment. Create a hardhat.config.js file and set up networks for localhost and a testnet like Sepolia. Add environment variables using a .env file to securely store private keys and RPC URLs (e.g., INFURA_API_KEY). Write a deployment script in the scripts/ directory that first deploys the PrivacyModule, then the MultiSigWallet, passing the module's address to its constructor. Test the setup by running npx hardhat test on initial skeleton contracts to ensure the environment works.

A multi-signature (multi-sig) escrow contract is a fundamental tool for secure, trust-minimized transactions. It acts as a neutral third party, holding assets until predefined conditions are met and approved by a set of authorized signers. Unlike a simple 2-of-2 wallet, a dedicated escrow contract can encode complex logic for dispute resolution, time-locked refunds, and conditional releases. This architecture is essential for high-value deals, DAO treasury management, and any scenario where no single party should have unilateral control over locked funds. Popular base contracts like OpenZeppelin's AccessControl or Gnosis Safe's modules provide a solid foundation to build upon.

The core privacy challenge in public blockchain escrows is the visibility of terms. To address this, we can use commit-reveal schemes and encryption. Before deployment, sensitive details like the final price or specific deliverable can be hashed and stored as a bytes32 commitment. Only later, during the approval or release phase, are the original details submitted and verified against the hash. For off-chain negotiation, parties can use their public keys to encrypt terms using a library like eth-encrypt and store the ciphertext on-chain, decryptable only by the involved parties. This keeps the deal's commercial specifics confidential while maintaining an immutable, on-chain record of the agreement's existence and state.

Here's a simplified architectural overview of a 3-of-5 multi-sig escrow contract with a basic commit-reveal scheme:

solidityCopy
contract PrivateEscrow {
    address public buyer;
    address public seller;
    address[] public signers;
    uint256 public threshold;
    bytes32 public hashedTerms;
    mapping(address => bool) public approvals;
    
    constructor(
        address _buyer,
        address _seller,
        address[] memory _signers,
        uint256 _threshold,
        bytes32 _hashedTerms
    ) {
        buyer = _buyer;
        seller = _seller;
        signers = _signers;
        threshold = _threshold;
        hashedTerms = _hashedTerms;
    }
    
    function approveRelease(string memory revealedTerms) external {
        require(isSigner(msg.sender), "Not a signer");
        require(keccak256(abi.encodePacked(revealedTerms)) == hashedTerms, "Terms mismatch");
        approvals[msg.sender] = true;
    }
    // ... releaseFunds function checks threshold
}

The constructor locks in the parties, signer set, and the hashed terms. The approveRelease function forces the reveal of the plaintext terms, verifying them against the hash before counting the approval.

Integrating with this contract requires careful client-side engineering. The frontend must generate the terms hash using keccak256 and guide users through the signer approval process, typically via wallet signatures like EIP-712 for clarity. For a more advanced privacy layer, consider using Zero-Knowledge (ZK) proofs. With a ZK-SNARK circuit, parties could prove they know the plaintext terms that hash to the public commitment without revealing them, and further prove that the terms satisfy the escrow's conditions. While more complex, frameworks like Circom and snarkjs make this increasingly feasible for production, moving from privacy via obfuscation to privacy via cryptographic proof.

Security audits and formal verification are non-negotiable for escrow contracts. Key risks include: - Signature replay or front-running: Use nonces or commit-reveal delays. - Threshold griefing: A signer can approve but not trigger release, blocking progress. Mitigate with an auto-execute function once threshold is met. - Time-based attacks: Ensure refund deadlines use block.timestamp correctly and account for block time variance. Always use established libraries like OpenZeppelin for ownership and access control, and consider a bug bounty program on platforms like Immunefi before locking substantial value. The contract's upgradeability should also be carefully managed, often via a transparent proxy pattern with a strict multi-sig admin.

This architecture pattern is deployed in real-world protocols. Sablier's streaming payments use time-based release logic. Gnosis Safe's Zodiac module Reality allows for oracle-resolved escrows. For production, you can fork and adapt audited code from these repositories. The final system should provide a clear audit trail of approvals, keep commercial terms confidential, and guarantee that funds are only released upon cryptographically-verified, multi-party consent. This creates a powerful primitive for secure and private coordination on public blockchains.

A stealth address is a unique, one-time address generated for each transaction to a recipient, ensuring their primary wallet address remains private on-chain. In a multi-sig escrow, this prevents observers from linking the escrow deposit to the final beneficiary's public identity. The core mechanism involves the sender generating an ephemeral key pair and using the recipient's stealth meta-address (a public key) to compute a shared secret. This secret derives the stealth address where funds are sent, which only the recipient can detect and spend from using their private key.

To implement this, you'll need a library for elliptic curve cryptography, such as the secp256k1 library. The process begins off-chain. The sender needs the recipient's stealth meta-address, which is often shared via a secure channel or published in a privacy-focused directory. Using this, the sender generates a random ephemeral private key and its corresponding public key. The Diffie-Hellman key exchange is then performed between the sender's ephemeral private key and the recipient's meta-address to create a shared secret.

The shared secret is hashed to generate the stealth address. A common standard, like ERC-5564: Stealth Addresses, defines this process for Ethereum. The stealth address is a standard Ethereum address computed as stealthAddress = address(keccak256(sharedSecret) + recipientSpendingPubKey). The sender also must emit an on-chain announcement containing the ephemeral public key, often via a registry contract, so the recipient can scan for transactions intended for them. The recipient scans these announcements, recomputes the shared secret using their private key, and derives the stealth address to find and control the funds.

Here is a simplified code snippet demonstrating the off-chain generation logic in Solidity-style pseudocode:

solidityCopy
function generateStealthAddress(
    address recipientMetaAddress,
    uint256 ephemeralPrivKey
) public pure returns (address stealthAddr, uint256 ephemeralPubKey) {
    ephemeralPubKey = derivePubKey(ephemeralPrivKey);
    bytes32 sharedSecret = keccak256(ecdh(ephemeralPrivKey, recipientMetaAddress));
    stealthAddr = address(uint160(uint256(keccak256(abi.encodePacked(sharedSecret, recipientSpendingPubKey)))));
}

The actual on-chain escrow contract would then fund this generated stealthAddr.

Integrating this into your multi-sig escrow means the deposit function must accept the computed stealth address as the beneficiary parameter instead of a public address. The escrow's release function remains unchanged, sending funds to this pre-defined stealth address. This design decouples the privacy mechanism from the escrow logic, keeping the smart contract simple and auditable. The primary complexity and gas cost shift to the off-chain address generation and on-chain announcement emission, which is a favorable trade-off for enhanced privacy.

For production use, consider established implementations and audits. The ZKSAFE project and the stealth-address-registry reference from ERC-5564 provide practical starting points. Always ensure your implementation uses a cryptographically secure random number generator for the ephemeral key and follows the exact keccak256 hashing specifications to guarantee compatibility with recipient scanning tools.

Zero-knowledge proofs (ZKPs) allow a prover to convince a verifier that a statement is true without revealing the underlying information. In our escrow, this enables the buyer to prove they have satisfied a private condition—such as receiving a valid shipment tracking number or a secret confirmation code—without disclosing the sensitive data itself to the arbitrators or the contract. We implement this using zk-SNARKs via libraries like Circom for circuit design and SnarkJS for proof generation and verification, creating a trustless privacy layer.

The core of this system is a ZK circuit written in a domain-specific language. This circuit defines the logical condition for fund release. For example, a circuit could verify that a provided secretHash matches a predefined commitment stored during escrow setup, proving the buyer knows the secret without revealing it. The circuit is compiled and a trusted setup ceremony generates the proving and verification keys. The verification key is then embedded into the smart contract, which will use it to validate any submitted proofs.

Here is a simplified example of a Circom circuit template that checks a hash commitment:

circomCopy
template SecretCommitment() {
    signal input secret;
    signal input salt;
    signal output commitment;

    component hash = Poseidon(2);
    hash.inputs[0] <== secret;
    hash.inputs[1] <== salt;
    commitment <== hash.out;
}

component main {public [commitment]} = SecretCommitment();

This circuit takes a private secret and salt to generate a public commitment. The buyer would later prove they know the preimage (secret, salt) that hashes to the escrow contract's stored commitment.

The workflow integrates with the multi-sig escrow. During escrow creation, the buyer or seller uploads the public verification key and the condition's public commitment (e.g., the hash). To trigger a release, the buyer generates a zk-SNARK proof off-chain using SnarkJS, demonstrating knowledge of the secret satisfying the circuit. They then submit this proof to the escrow contract, which calls its verifyProof() function. Only if the proof is valid does the contract unlock the funds for the seller, completing the transaction with cryptographic certainty and privacy.

This approach significantly enhances security and flexibility. It prevents front-running or information leakage from on-chain condition checks, protects commercial secrets, and allows for complex logical conditions (AND/OR gates) within the circuit. However, it introduces complexity: you must manage the trusted setup, circuit security audits, and off-chain proof generation infrastructure. For developers, resources like the Circom Documentation and zkREPL are essential for testing and implementation.

The heart of the escrow is the executeRelease function, which enforces the multi-signature policy. A typical implementation requires a minimum threshold of approvals (e.g., 2-of-3) before funds can be transferred to the seller. Each approval is a cryptographically signed message from an authorized party. The contract must verify these off-chain signatures on-chain using ecrecover, which validates the signer's address against the stored public key of an escrow participant. This approach keeps the list of approvers private until execution.

To manage state securely, the contract implements a state machine. It transitions from State.Active to State.AwaitingExecution once the threshold of valid signatures is collected. A critical check ensures the contract cannot be finalized or disputed (State.Disputed) once execution is pending. The logic must also prevent replay attacks by including the contract's address and a unique nonce in the signed message hash. We recommend using EIP-712 for structured data signing, as it provides clear signing prompts in wallets like MetaMask.

For dispute handling, a separate raiseDispute function allows the buyer or seller to halt the process and trigger a manual review, moving the contract to State.Disputed. This function should be permissioned and include a timelock to prevent abuse. All state changes and fund movements must emit clear events (e.g., EscrowExecuted, DisputeRaised) for off-chain monitoring. The final code should be thoroughly tested, especially for edge cases around signature malleability and reentrancy, using frameworks like Foundry or Hardhat.

Below is a simplified Solidity snippet illustrating the signature verification core. The verifySignature function reconstructs the signed message hash and validates it against the provided signatures and known signer addresses.

solidityCopy
function executeRelease(
    bytes32 hashedMessage,
    bytes[] calldata signatures,
    address[] calldata signers
) external {
    require(state == State.Active, "Escrow not active");
    require(signatures.length >= threshold, "Insufficient signatures");
    require(signers.length == signatures.length, "Signer length mismatch");

    for (uint i = 0; i < signatures.length; i++) {
        address recovered = verifySignature(hashedMessage, signatures[i]);
        require(recovered == signers[i], "Invalid signature");
        require(isApprover[recovered], "Not an approver");
    }
    state = State.AwaitingExecution;
    // Transfer funds to seller...
}

After implementing the core logic, integrate the contract with a frontend using a library like ethers.js or viem. The UI should guide the approver through generating an EIP-712 signature for the release. The signed data must include the exact hashedMessage (containing contract address, amount, and nonce) that the contract expects. Finally, audit the complete system, focusing on the signature verification flow and access controls, before deploying to a testnet like Sepolia for final validation.

Before deployment, conduct comprehensive unit and integration testing. Use a framework like Hardhat or Foundry to write tests that verify core functionality: - The correct deposit and release of funds. - The enforcement of the multi-signature threshold (e.g., 2-of-3). - The proper functioning of the privacy features, ensuring only authorized parties can view sensitive data. - The correct handling of edge cases, such as a signer attempting to sign twice or a non-signer attempting to release funds. Simulate mainnet conditions by testing on a forked network.

Deploy the contract using a script that handles constructor arguments securely. For a 2-of-3 multi-sig escrow with privacy, you will need to pass the array of signer addresses and the threshold to the constructor. Always verify the contract source code on a block explorer like Etherscan immediately after deployment. This provides transparency and allows anyone to audit the bytecode against your published source. Use environment variables or a secure secret manager for any private keys used in deployment scripts.

After deployment, establish clear operational procedures. Document the process for the beneficiary and signers, including how to: - Generate and share the stealth address or viewing key for private deposits. - Initiate a release transaction. - Collect the required signatures off-chain (e.g., using EIP-712 signed messages). - Submit the batched transaction to the contract. Consider using a relayer service or a dedicated transaction management dashboard to simplify the signature collection process for non-technical participants.

Plan for long-term contract management and security monitoring. Since the contract holds funds, monitor its activity using tools like Tenderly or OpenZeppelin Defender for alerts. Establish a protocol for key rotation among the multi-signature signers in case of compromised keys, which may require deploying a new escrow contract and migrating funds. For maximum security, consider having the contract audited by a professional firm before locking significant value, especially when combining complex features like multi-sig and privacy.

This tutorial demonstrated how to combine multi-signature security with transaction privacy. The system uses a Gnosis Safe smart contract for fund custody and a custom ZK circuit, built with circom, to prove payment conditions without revealing sensitive details like the exact release amount or recipient address on-chain. The final workflow involves generating a proof off-chain and submitting only the proof and public signals to a verifier contract, which then triggers the Safe to execute the transaction.

For production deployment, several critical steps remain. First, thoroughly audit both the ZK circuit logic and the integration contract. Use services like Trail of Bits or CertiK for professional reviews. Second, implement robust key management for the proof generation server, considering hardware security modules (HSMs) or trusted execution environments (TEEs). Finally, design a fail-safe mechanism, such as a timelock escape hatch, allowing signers to recover funds if the prover service fails.

To extend this system, consider integrating with Tornado Cash Nova or Aztec Protocol for enhanced privacy on the fund deposit side, making the entire flow private. You could also explore using zkSNARKs for more complex disbursement logic, like milestone-based payments where each milestone proof is submitted sequentially. The Ethereum Privacy Scaling Explorations repository is an excellent resource for advanced circuit patterns.

The next practical step is to test the system end-to-end on a testnet like Sepolia or Holesky. Deploy your contracts, simulate the full escrow lifecycle with multiple signers, and use a block explorer like Etherscan to verify that only the proof data is published. Monitor gas costs for proof verification, as this is the main on-chain expense, and optimize your circuit if necessary.

This architecture represents a shift towards programmable privacy in DeFi and DAO operations. It enables use cases like confidential payroll, discreet vendor payments, and private treasury distributions where transaction details must be hidden from public view while maintaining strict multi-party governance. As ZK technology matures, expect these patterns to become standard for institutional-grade blockchain applications.