TL;DR
For one person, 2-of-3 is the better balance. 3-of-5 survives losing two keys, but you need five seeds in five places and three devices every time you spend. Most real losses come from misplaced backups, and 3-of-5 means more of them.
| 2-of-3 | 3-of-5 | |
|---|---|---|
| Keys you can lose | One | Two |
| Keys a thief needs | Two | Three |
| Seeds to store | Three, in three places | Five, in five places |
| Devices per transaction | Two | Three |
| Hardware to buy | Three devices | Five devices |
| Fees | Somewhat higher than single-sig | Higher again |
What 3-of-5 buys you
More margin. Two keys can go missing and you still get in; a thief needs three. For a family or a company where several people each hold a key, 3-of-5 can make a lot of sense.
What it costs a single owner
For one person, it’s hard to find five separate places that won’t all be lost at once. Each extra backup has to be checked every year, and each is one more copy someone could find or you could mix up. Spending takes three devices, which you’ll feel every time.
When to move up
If the amount grows to where losing two backups at once is a realistic worry, or several people should each hold a key. You can’t change the quorum (how many keys must sign) of an existing wallet: you build a new one and move the coins over. More in multisig vs single-sig and advanced topics.