[bitcoin-dev] BIP49 Derivation scheme changes

[shiva sitamraju <shiva@blockonomics.co>]

[-- Attachment #1: Type: text/plain, Size: 1881 bytes --]

Hi,

I wanted to discuss few changes in BIP49

*- Breaking backwards compatibility *
The BIP talks about breaking this, and  but it really doesn't.  I really
feel it should completely break this. Here is why

What would happen if you recover a wallet  using seed words ?
  1. Since there is no difference in seed words between segwit/non segwit,
the wallet would discover both m/44' and m/49' accounts
  2. Note that we cannot ask the user to choose an account he wants to
operate on (Segwit/Non segwit). This is like asking him the HD derivation
path and a really bad UI
  3. The wallet now has to constantly monitor both m/44' and m/49' accounts
for transactions

Basically we are always stuck with keeping compatibility with older seed
words or always asking the user if the seed words came from segwit/non
segwit wallet !

Here is my suggestion :
1. By default all new wallets will be created as segwit  m/49' without
asking user anything. I think you would agree with me that in future we
want most wallet to be default segwit (unless user chooses a non segwit
from advanced options)!

2. Segwit wallet seed words have a different format which is incompatible
with previous wallet seed words. This  encodes the information that this
wallet is segwit in the seed words itself. We need to define a structure
for this



*- XPUB Derivation*
This is something not addressed in the BIP yet.

1. Right now you can get an xpub balance/transaction history. With m/49'
there is no way to know whether an xpub is from m/44' or m/49'

2. This breaks lots of things. Wallets like electrum/armory/mycelium
<https://blog.trezor.io/using-mycelium-to-watch-your-trezor-accounts-a836dce0b954>support
importing  xpub as a watch only wallet. Also services like blockonomics/
blockchain.info use xpub for displaying balance/generating merchant
addresses

Looking forward to hearing your thoughts

[-- Attachment #2: Type: text/html, Size: 2327 bytes --]