Bitcoin BIP138 proposal aims to secure multisig wallets with encrypted backups

Bitcoin's BIP138 wallet-backup proposal was merged into the Bitcoin Improvement Proposals repository on September 21, but remains in Draft status. It seeks to preserve information that a seed phrase may not restore in complex wallets. However, a third party could access this information if it holds an eligible extended public key (xpub) and obtains a copy of the encrypted backup. Multisignature wallets require multiple signers, and losing the descriptor can make recovery impossible. The proposal also notes that a wallet designed to survive the loss of one seed may lose that signer's public key, complicating recovery for remaining signers. BIP138 proposes an encrypted file containing descriptors and wallet policies, with private key material removed before encryption. Holders of an eligible xpub can decrypt the backup without the wallet's seed, revealing necessary public keys and script structure for recovery. The draft limits who can decrypt the file, excluding public keys directly in a script and xpub roots exposed by spending. A privacy concern arises if an xpub is disclosed before the multisig wallet is created, allowing a wallet-service server to decrypt the backup if it knows the xpub. A public Rust implementation is available, but the proposal does not guarantee compatibility with existing wallets.

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