BIP352 private key formats

In the realm of cryptocurrency wallets, the modification of "xpub" or output descriptors due to changes in wallet birthday or the addition of a label raises concerns about user experience and security. The practice of altering these critical identifiers can be disconcerting for users and is generally unnecessary except in specialized applications such as exchanges. These applications may require the differentiation of incoming payments while still associating them with a single entity, a need typically addressed by publishing multiple Single Purpose (SP) addresses. However, for broader use, it is more appropriate for wallets to generate SP keys from distinct BIP32 accounts instead of relying on mutable labels or identifiers.

The integration of sp_version, scan_key, and spend_key into a singular unit presents a streamlined approach to key management within digital wallets. This methodology not only simplifies the representation of critical wallet information but also mitigates the risk of key mismanagement, such as the accidental swapping of keys. Extended Public Keys (xpubs) exemplify this convenience by consolidating chaincode and keys, thereby enhancing user experience without sacrificing security. Additionally, the proposal to make birthday and maxlabel parameters optional within an output descriptor format—defaulting to a specific block height and one change label unless otherwise specified—promises to maintain operational efficiency without overwhelming the user with unnecessary details.

The impact of adding labels on transaction processing efficiency cannot be understated. Benchmarks provided using Frigate on an 8x RTX 3060 GPU setup over a 64-week period demonstrate a significant increase in processing time and a decrease in transactions per second (Tx/sec) with the addition of labels. Processing times increased from 16,949ms with no label to 25,109ms with 30 labels, alongside a reduction in transaction throughput from approximately 4.2 million Tx/sec to 2.8 million Tx/sec. This data highlights the computational cost associated with each additional label, involving at least an Elliptic Curve (EC) point addition and a comparison against all eligible outputs for every transaction scanned, underscoring the importance of optimizing label usage within wallet designs to balance functionality and performance.