Bitcoin BIP: Enhancing Multisig Privacy with Chain Code Delegation
A significant stride towards bolstering privacy in Bitcoin's collaborative custody landscape has been initiated with the introduction of a new Bitcoin Improvement Proposal (BIP) titled “Chain Code Delegation for Private Collaborative Custody.” This proposal, recently opened on the Bitcoin BIPs repository, directly addresses a persistent privacy vulnerability inherent in multisig collaborations that depend on the sharing of extended public keys (xpubs). Developed by engineers from Bitkey and their collaborators, with an accompanying public explainer from Bitkey, this innovative technique seeks to redefine the trust model in multisig setups. Its primary objective is to restrict the disclosure of BIP32 chain codes from non-privileged participants, thereby enabling cosigners to effectively contribute to recovery processes and policy enforcement without gaining unrestricted insight into a user's complete balances and transactional history. Bitkey has also expressed its commitment to being the inaugural implementer of this scheme, contingent upon its acceptance as a recognized standard within the Bitcoin ecosystem.
The Privacy Challenge in Traditional Multisig
The privacy conundrum in conventional collaborative or assisted multisig configurations is a well-understood challenge among both wallet engineers and custodial partners. In such setups, a cosigner is typically provided with an xpub alongside a chain code. This combination grants them the capability to deterministically derive all addresses associated with a user’s wallet. Consequently, by scanning the blockchain, the cosigner can infer comprehensive details regarding the user’s balances and the historical flow of their transactions. This broad visibility, while facilitating recovery and policy enforcement, creates an inherent privacy leak, as it exposes potentially sensitive financial information to third parties who, arguably, do not require such extensive access for their designated roles. The current paradigm necessitates a trade-off between operational convenience and user privacy, a compromise that the "Chain Code Delegation" BIP aims to mitigate.
Chain Code Delegation: A Paradigm Shift for Bitcoin Privacy
Redefining Trust Boundaries in Collaborative Custody
Bitkey's public explanation succinctly articulates the core issue: "sharing a key with a third party has traditionally meant giving that party visibility into a user’s wallet balance and transaction history." The proposed Chain Code Delegation approach endeavors to eliminate this trade-off. It achieves this by entirely withholding chain codes and selectively revealing only the minimal necessary information precisely at the moment of a spend. The abstract of the newly proposed BIP clarifies this fundamental alteration in trust boundaries: "We propose a new BIP for Chain Code Delegation, a collaborative custody technique that involves privileged participants (delegatee) withholding BIP32 chain codes at key setup time from a delegator, and sharing only enough information for non-privileged participants to provide their signature." This structural change ensures that third-party cosigners are granted a significantly narrower scope of information, aligning their access with their specific function without compromising overall user privacy.
Operational Mechanics: Non-Blinded and Blinded Flows
The technical implementation of Chain Code Delegation involves two distinct flows: a non-blinded flow and an optional blinded flow, leveraging the properties of Schnorr signatures. In the non-blinded flow, the delegatee, possessing the withheld chain code, derives a per-spend scalar tweak (t). The delegator then uses this tweak to compute the child key (x+t, P+tG) and subsequently generates a standard signature over the transaction’s sighash. This mechanism ensures that the cosigner only receives transaction-specific information. For an even higher degree of privacy, the blinded flow incorporates Schnorr blind signing. This advanced technique allows the cosigner to remain oblivious to the final message being signed, even while enforcing the per-spend tweak. The linearity property of Schnorr signatures is crucial here, ensuring the correctness of the signature despite the blinding process. This dual-flow design offers flexibility, allowing users to choose the level of privacy suitable for their collaborative custody arrangements.
Transformative Benefits: Enhanced Security and User Control
Functionally, Chain Code Delegation significantly constrains the scope of information a cosigner can ascertain, and critically, when they can ascertain it. Rather than possessing permanent, global observability over all derived addresses within a user's wallet, the cosigner is exposed only to per-spend data as and when required for specific transactions. Bitkey's explainer translates this technical advantage into a clear, user-centric benefit: cosigners can effectively assist with recovery procedures or enforce spend policies "without learning anything about unrelated transactions or overall balances." This shift represents a monumental improvement in user control over their financial data within collaborative custody environments. If widely adopted across the industry, this innovation has the potential to elevate the privacy characteristics of assisted collaborative custody wallets to a level comparable with self-managed DIY multisig solutions, all while retaining the operational efficiencies and ease of use that have made assisted models appealing to a broader spectrum of users, from mainstream individuals to large enterprises.
Beyond privacy, the design of Chain Code Delegation offers additional security advantages. A technical discussion on Delving Bitcoin highlighted two key benefits: firstly, it limits the "security blast radius." Without access to the complete chain code or undisclosed tweaks, a custodian's key becomes effectively unspendable for Unspent Transaction Outputs (UTXOs) for which they have not been explicitly delegated. This significantly reduces the risk associated with a compromised cosigner. Secondly, it ensures that only precisely what is necessary is revealed at the moment of spend, often just prior to the consumption of those outputs, thus minimizing exposure time. This ongoing open development and discussion have been instrumental in refining the proposal, providing valuable context for reviewers to understand its hardening through community feedback.
Path to Adoption and Industry Impact
Bitkey has positioned itself as a leading proponent and forthcoming implementer of this standard. The company explicitly states its intention: "Bitkey plans to be the first to implement Chain Code Delegation in production," asserting that this will enable "a private collaborative wallet—something that hasn’t been possible until now." Crucially, the objective is for Chain Code Delegation to evolve into an "open, community-vetted standard that any wallet or custody provider can adopt," rather than remaining a proprietary vendor-locked feature. This open-source ethos is vital for widespread adoption and decentralization within the Bitcoin ecosystem. Prominent figures within the industry have already endorsed this initiative; for instance, Jack Dorsey, Principal Executive Officer and Chairman of Block, Inc., publicly commended Bitkey’s dedication to advancing privacy improvements from the product level to the fundamental protocol layer. This collective support underscores the significance and potential impact of this BIP on the future of Bitcoin privacy and secure collaborative custody solutions.
The "Chain Code Delegation for Private Collaborative Custody" BIP marks a pivotal moment for Bitcoin's evolution, addressing a critical privacy gap in multisig operations. By strategically limiting the information shared with cosigners, it empowers users with greater financial privacy without sacrificing the benefits of collaborative security. As this proposal moves through the community vetting process, its potential to establish a new, more private standard for multisig custody could fundamentally reshape how users interact with and secure their Bitcoin, fostering a more robust and privacy-centric ecosystem for all participants.
