[BIP Proposal] Compressed Base58 Encoding for BIP-39 Mnemonics with Multisig Extensions

Zach, a Bitcoin enthusiast, proposes an innovative Bitcoin Improvement Proposal (BIP) aimed at enhancing wallet usability and security through the compression of mnemonic phrases. His proposal introduces a new method to compact BIP-39 mnemonic phrases into a 24-character string using Base58 encoding, a significant reduction from the standard 12-word mnemonics. This approach not only simplifies the representation but also ensures deterministic, reversible encoding that aligns with current seed generation processes.

Additionally, Zach outlines an optional extension tailored for multi-signature (multisig) setups, particularly useful in scenarios like 2-of-3 schemes. In these setups, each participant's storage would contain their local compressed mnemonic alongside the extended public keys (xpubs) from other participants, all concatenated into a single Base58 string with a checksum for integrity verification. This format, approximately 252 characters long, is designed to support secure, distributed storage and facilitate easier mnemonic and multisig data management, especially in space-constrained environments such as physical backups or QR codes.

The proposal meticulously details the encoding process, including the division and remainder operations to map each word in the BIP-39 English wordlist to a unique two-character code. It emphasizes the rationale behind choosing Base58 for its efficiency and compatibility, ensuring the scheme exceeds the needed capacity to represent all 2048 words uniquely. Furthermore, Zach elaborates on the structure and verification process of the multisig storage format, illustrating how this compact format could significantly streamline operations involving multiple parties and geographically dispersed locations.

Zach invites feedback from the Bitcoin-Dev community on his draft, indicating openness to suggestions for improvement before formalizing the submission. He acknowledges the foundational work of the BIP-39 authors and the contributions of the Bitcoin community to establishing Base58 standards, underlining his proposal's alignment with existing practices while pushing for advancements in security and usability.