A new Bitcoin Improvement Proposal (BIP) titled 'Chain Code Delegation for Private Collaborative Custody' has been introduced to address privacy leaks in multisig wallet collaborations that use shared extended public keys.

Developed by Bitkey engineers, the proposal suggests withholding BIP32 chain codes from non-privileged participants, allowing cosigners to assist with recovery and policy enforcement without gaining full visibility into wallet balances and transaction histories.

During key setup, privileged participants would withhold chain codes, revealing only essential information at the time of spending, thereby reducing third-party access to sensitive data.

Currently, multisig setups involve sharing chain codes, which enables cosigners to derive addresses and monitor balances, exposing significant privacy risks.

This new technique limits what cosigners can learn, making collaborative custody wallets more privacy-preserving and comparable to DIY multisig solutions, while still maintaining operational benefits.

The benefits include reducing the security blast radius by preventing custodians from spending UTXOs they are not explicitly delegated for, and limiting the information revealed at the moment of spend.

The technical method involves generating a per-spend scalar tweak from the withheld chain code, with the delegator creating a modified child key and signature, employing Schnorr blind signing to keep the final message oblivious to the cosigner.

If widely adopted, this proposal could significantly improve privacy in collaborative Bitcoin custody solutions, aligning them more closely with individual wallet privacy standards.

The proposal has garnered positive attention from industry leaders, including Jack Dorsey of Block, Inc., highlighting its potential to enhance privacy in Bitcoin transactions.

Bitkey plans to implement this scheme first if it becomes an accepted standard, advocating for it to be an open, community-vetted protocol that any wallet or custody provider can adopt.