Partially Signed Bitcoin Transaction (PSBT)

A Partially Signed Bitcoin Transaction (PSBT) is a format that lets multiple people or devices safely collaborate to sign and spend bitcoin together. Designed by BIP 174, PSBT streamlines the process of building, sharing, and finalizing Bitcoin transactions—especially useful when more than one person needs to sign, such as with multisig wallets.

For instance, consider a 2-of-3 multisig address held by Alice, Bob, and Charlie. Spending these funds requires signatures from at least two out of the three owners. Using PSBT, one of them can create a transaction with all necessary details, then share a file that each participant can review and add their signature to. This is particularly helpful for workflows that use cold storage. A user can generate and sign a transaction on an offline device, then transfer it to an internet-connected computer for final broadcasting, keeping private keys secure.

PSBT also improves compatibility between different Bitcoin wallets. A watch-only wallet (which lacks private keys) can still build a transaction and export it as a PSBT file. This file can then be moved to another wallet, possibly on another device, where the required keys are held. After the transaction is fully signed, the updated PSBT can be broadcast to the Bitcoin network.

In short, PSBT makes multi-step and multi-party Bitcoin transactions safer, more portable, and easier to manage across different tools and devices.