Bitcoin Proposal Aims to Rescue Locked Multisig Wallets

A new Bitcoin proposal, BIP138, has been merged into the Bitcoin Improvement Proposals repository. This proposal aims to rescue locked multisig wallets by preserving information that a seed phrase may not restore in complex wallets.

The trade-off is that a third party could read this information if it already holds an eligible extended public key, or xpub, and obtains a copy of the encrypted backup.

Multisignature wallets require more than one signer. Their descriptor records the public keys and spending rules that tell wallet software how to reconstruct the account and find its coins.

The proposal describes another failure: a wallet designed to survive the loss of one seed may also lose that signer's public key, leaving the remaining signers without a piece of the script needed to recover the coins.