A partially signed Bitcoin transaction, PSBT, is a standard file format for a transaction that is not finished yet. One program creates it, others add signatures, and the last one broadcasts it.
The air gapped flow
- An online wallet that holds no private keys builds the transaction as a PSBT.
- The PSBT travels to the signing device by QR code or memory card, never by a network.
- The device shows the amount and destination, you check them on its screen, it signs.
- The signed PSBT travels back the same way and the online wallet broadcasts it.
The keys never touch a computer connected to the internet. Malware on the online computer can still try to swap the destination, which is why you always confirm the address on the signing device's own screen.
PSBT is also what makes multisig practical: the same file passes from one key holder to the next, each adding a signature.