Avoiding xpub+derivation reuse across wallets, in a UX-friendly manner

Implementation
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1

Introduction:

Signing devices can be reused for multiple wallets, but xpubs+derivation should not. Some simple examples are when rotating to a different wallet to change one key in a multisig setup, or when rotating the wallet to push an absolute timelock date. For privacy, it is important to not reuse xpubs+derivation even if the same devices are still present in the setup.

Moreover, it is unreasonable to assume users (will) stick to a single software, they might use a multisig on one, a timelocked wallet on another…

It is also unreasonable to assume a user remembers or knows every (any?) paths they have used, and to remember to increase their derivation path each time they create a new wallet.

I’m writing this post as we are implementing “multi wallet” in Liana and I am not happy with any commonly used solution to avoid xpub reuse.

The issue:

One should not reuse xpubs+derivation across different wallets, it is bad for privacy. A signing device should be easy to reuse for different wallets without requiring the user to switch keys (passphrase or other), as a different derivation path is enough.

An extra layer of complexity is when dealing with air-gapped signers, the user is now expected to understand the difference between BIP numbers and wallet types.

The current ways this is addressed:

  • ask the user to select their “account” number
  • or keep a state of the last account used in that specific software wallet (typically on a wallet company server, or sometimes locally)

The first is yet another confusing thing users need to learn and keep track of, the second is specific to one software. Key reuse can still happen if reused on a different software.

I am not aware of other solutions currently used in prod, let me know if there are some.

Better UX to avoid key reuse - ideas

Since output descriptors technically supersede “BIPxx” standard derivation paths by explicitly recording the derivation paths used, and because multisig and more advanced/complex wallets shouldn’t rely on brute force reproduction of the script anyway, I believe it is time to think of a better UX than “increase your account number” of BIP48.

That being said, output descriptors also apply to single sig wallets… where users have been taught that keeping their Mnemonic is enough. Moving away from this for single sig wallets will not be trivial. This post is mainly intended at multisig or more advanced wallets, but if we can fix single sig key reuse too, that’d be a win.

I would like to define yet another “standard” that would reasonably guarantee that a user will not reuse keys, even on different software wallets, when they reuse a signing device.

Desired properties:

  • Works across vendors. Different software following the “standard” will always generate wallets with different xpubs, avoiding key reuse
  • Does not depend on others implementing it. A software NOT following the “standard” will not use the same xpub as a wallet created with a software following the spec (unless malicious)
  • Should work with current wallet flows. Some multisig software wallets already offer “one click” wallet rotation, without requiring access to the signing device. Others might generate multiple xpubs per seconds. Both of these use-cases should be covered, and more if we find them
  • Should be fool proof, the point is to improve UX without breaking privacy

Some proposed ideas

Hardened path, requires the signing device to generate the wallet

  1. Random path. As “standard” derivation paths are irrelevant to output descriptors, we can simply randomize the paths. [FINGERPRINT/xx’/Random’]. This is the simplest of all solutions and would work pretty great for all cases. For very large signers (belonging to many thousands of wallets, typically cosigners), another derivation layer could be added. [FINGERPRINT/xx’/Random’/Random2’]

  2. Deterministic path. For example using UNIX time at the time the xpub is requested to the device. [FINGERPRINT/xx’/1745925’/432’]. In this example I used the UNIX time. I arbitrarily split it at the 1 000sec digit. It would fit in a single level but will hit the 32-bits limit in 80 years. Another approach would be to use a human readable date, for example [FINGERPRINT/xx’/20250429’/124630’], where the first level is the date, the second is the time in Hours Minutes Seconds. This is quite easy from a UX perspective

  3. Storing state at each xpub request to the signing device. As the same seed can be imported to multiple hardware devices, this state has to be synchronized, therefore be shared with a server (public or not). The “account” can then be increased by 1 for each request. [FINGERPRINT/48’/0’/x’/2’] or whatever format, where x is increased. This method would need to be multi-vendor compatible

Out of these options, my preferred is 2, followed by 1.

1- Random path:

  • Some malware used random derivations in the past, creating stigma
  • It works all the time, even if you generate 1000s of xpubs per seconds (co-signers?)
  • Doesn’t rely on any state
  • Hardware don’t like “non-standard paths”

2- Deterministic:

  • Can be made user-friendly, understanding why the path looks like it does (date/time)
  • Works for humans, but might not work for a machine as-is. If more than 1 xpub is needed per second, another level needs to be added (or more precision, fractions of seconds)
  • Hardware don’t like “non-standard paths”

3- State is synchronized:

  • Wallet software needs to be connected to such server, bad for privacy and UX
  • Needs to be vendor-agnostic, and persistent
  • Might conflict with non-compatible wallet paths, depending on what path is incremented

Other considerations:

For the deterministic wallet, we cannot assume the software will be at the correct time/date. I believe with precision level at the second it should be OK, but it is simple to increase this to a millisec if believed useful. One UX issue I am aware of is that some hardware wallets will display a warning for “non-standard” derivation paths. This is definitely a drawback of these methods, but a much lesser evil than reusing xpubs.

Non-hardened paths, to rotate without access to the signing device

One use-case that multiple wallets are offering now (Casa, Nunchuk, Keeper, Unchained…) is to rotate/migrate wallets for key replacement or timelock management. To make the UX “one click”, some of these wallets are using a non-hardened path, and incrementing that counter.

While this is acceptable, it is currently not a fit for our cross-vendor compatibility. One should be able to import a wallet created on a software, to another, and then rotate. The main issue here is that if a user wants to import a backup from one vendor to another, each vendor will potentially know about all other such wallets of this user (unhardened paths).

I suppose for this specific use case, the Random option is the best one but is becoming quite heavy, adding a few extra levels of non-hardened paths, preventing brute forcing.

Or just avoid rotations without the signing device being present: we stick to hardened paths.

What about single sig!?

That one is a tough one. The problem persists for single sig, as you may reuse a signing device across software/wallets.

Getting rid of the “standard” derivation paths is a battle I know won’t be worth it. If people don’t want descriptors, then they will have to sacrifice something: privacy if they need a sync server for example. But in that case (sync server), why not just use said server to keep an encrypted backup of your descriptor instead?

Other discarded ideas (from myself and others) were:

  • State stored in the signing device, which wouldn’t persist in case the secret needs to be imported again, and which wouldn’t be synchronized across devices of the same seed
  • Checking on-chain for prior use of a key, which assumes a key has been used/revealed. For a wallet like Liana or similar using multiple Taproot branches, using a wallet might not reveal a key was used. Or even just depositing funds to a wallet does not imply spending from it for a while, so an xpub could be already part of a setup without having yet revealed any key on-chain
  • Tying the path to a “name” of the wallet, as names may not be unique either

Thanks for reading, I hope we can find a good way to move forward without the risk of users reusing keys across wallets. The idea here is to come up with a best practice for wallet devs. I don’t pretend to have the perfect answer.

2

Regarding air gapped wallets, we might want to define a “xpub request” QR from the software to the device, instead of the user typing the derivation.

3

Thanks for raising the discussion. I think it’s an important problem, and it will become increasingly more important in the future. I’ll add some of my thoughts for consideration in the discussion.

Save the coin_type'

A little note that while I agree that descriptors mostly supersede the various derivation standards, there’s still value in using hardened derivations to partition key hierarchies. Arguably, of the three level defined in BIP-44 (purpose'/coin_type'/account'), the coin_type' is still quite useful to partition keys across networks/coins. In fact, Ledger (and I suspect other vendors) uses it to disallow the acceptable derivation paths for most apps.

If a BIP-XXX emerges from this discussion, it could still make sense to have XXX'/coin_type' as the first two derivation steps.

Concerns for hardware signing device UX

About the scheme, a concern is that it increases the amount of information content (entropy) of the descriptor. That information has to be displayed to the user, and failure to check it could lead to ransom attacks if the software wallet is compromised (that is: malware tricks the user into registering a descriptor with a wrong backup. Then, all they need to do in order to lock the user out of their funds is to delete their software wallet. When the user tries to recover from their incorrect backup, the attacker can ransom them in exchange for the correct descriptor).

Therefore, this is making a tradeoff: improving privacy by default, but also making the UX a bit worse by default - at a security-critical moment like the on-device descriptor registration).

Unfortunately, minimizing the entropy while at the same time obtaining privacy by default seems to inherently require state - and I don’t think keeping the state on the signing devices is viable.

:light_bulb: Monotonic backups?

A possible solution I was toying with (but certainly nontrivial to implement) could be to have small storage providers that are only trusted to store small amounts of encrypted data. That would kind of generalize what I proposed for descriptors and wallet policies, in that you would backup some extra information, and you’d want to be able to update it dynamically over time (therefore, some more care is needed for the cryptography, compared to the linked scheme).

Information like I used xpub m/xx'/yy'/zz is very small, and monotonically updated over time (you never un-use a used xpub). Therefore, you could (should!) have multiple digital copies of this information, and it is straightforward to reconcile diverging copies: you store the union of the two sets of used xpubs. Since the loss of this information is not catastrophic (at most you end up re-using an xpub), something that works almost always might be good enough in practice.

Small storage providers could be: the user’s own devices; cloud storage accounts; semi-trusted nostr contacts; service providers for wallets (like Liana); etc.

Such a backup system could also be used for other monotonic info wallets might want to store (BIP-329 labels?).

However, building the tooling for such a system (standards, storage types and management, reconciliation) is rather large endeavor which extends much beyond the scope of your post.

4

When dealing with xpubs we have 2 main considerations, privacy and UX. The current BIP43 standard is lacking in both good privacy and UX. It pushes users to reuse pub keys, and also it forces users to manage many xpubs, making a bad UX.

I think UX wise both the random option and the unix options would be a negative.

  1. It would mean requiring the user to connect all devices when they create, rotate, or renew a wallet. This is already a difficult UX when the user has all keys together, but when keys are kept separately (with different people or at different locations), especially common in rotating or renewing, forcing the user to get new xpubs from each signing device would make the process much more complicated (for example a 3 of 5, rotating out 1 key would mean you’d need to first get xpubs from all other 4 keys, not just 3 keys which need to sign the rotation tx).
  2. Showing random numbers or unix time is a very bad UX, we already have users confused with many random numbers throughout the entire process, and adding more of these in the UI will make it even harder to reason about.

From a user perspective, the ideal UX would be to only ever “add” a key/ device to their software once. This would be feasible only if we use unhardened derivations to manage different wallets, but I don’t think this is a big issue nowdays. For normal use cases unhardened derivations should be fine, and the UX gains are significant.

5

Also for single sig, since there is only one way to use it, I think the maintaining the current standard, or keeping something similar where there is still just purpose and account (and of course coin type) derivation is good, with the account and purpose parts unhardened though.

Then for multisig, backing up of the descriptor is already a recommended action, so using Unix time may be a good approach there, but only with unhardened derivation, otherwise the friction with hardware wallet will just make users reuse their xpubs.