A simple backup scheme for wallet accounts

The BIP-138 specification currently utilizes xpubs as decryption keys, which does not necessitate access to private key material. While this design aims to enhance security by avoiding the need for private key access, it presents several tradeoffs that may not be favorable to all users. Recognizing these concerns, a proposal has been introduced to add an alternative encryption method that might appeal to those dissatisfied with the current model.

The new proposed encryption method involves using a Bitcoin private key to sign a standardized string, specifically BIP-138. This signature would then serve both as the key to encrypt and decrypt wallet backup data. This approach simplifies the encryption process since it only requires the user to utilize their private key to handle the signing of a predefined string, thereby eliminating the need for memorizing or backing up additional information. The use of this method also enhances flexibility; for instance, the same server tasked with balance scanning could securely store the encrypted backup without full visibility into its contents.

Concerning practical implementation, the proposal suggests employing P2PKH dpaths for the bitcoin private key used in this new method. Given that Taproot's generic message signing is not yet widely supported, as highlighted in discussions like that found on Trezor's GitHub page, using older address types is advised for broader compatibility. The proposal includes allowing users to select their dpath while recommending certain defaults and appending this path unencrypted to the backup data to facilitate decryption. This recommendation aims to maintain security while ensuring user convenience and compatibility across different technology platforms.