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Bitcoin BIP138 merged as draft, proposes encrypted descriptor backups

BIP138, merged on Sept. 21, remains in Draft form and says encrypted backups could be readable by a third party if they already have an eligible xpub and a copy of the encrypted file.

Reported · Written up by our desk · Bitcoin

CryptoSlate reports that Bitcoin's BIP138 wallet-backup proposal was merged into the Bitcoin Improvement Proposals repository on Sept. 21, though the specification is still marked Draft. The proposal is designed to preserve wallet information that a seed phrase may not be able to fully restore in more complex setups, including multisignature wallets.

According to CryptoSlate, multisignature wallets rely on descriptor records that include public keys and spending rules wallet software uses to reconstruct accounts and locate coins. The outlet says a seed phrase can regenerate private keys for one signer, but if the descriptor is lost, the wallet script can become difficult or impossible to reconstruct using the seed alone.

CryptoSlate also highlights a key tradeoff described in the proposal. The encrypted backup could expose information to a third party if that party already holds an eligible extended public key, or xpub, and obtains a copy of the encrypted backup file.

The proposal further notes another potential failure mode, where a wallet built to survive the loss of one seed may also lose that signer's public key. CryptoSlate reports that in that case, remaining signers could be missing a piece of the script needed to recover the coins.

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