<pre>
  BIP: 45
  Layer: Applications
  Title: Structure for Deterministic P2SH Multisignature Wallets
  Authors: Manuel Araoz <manu@bitpay.com>
           Ryan X. Charles <ryan@bitpay.com>
           Matias Alejo Garcia <matias@bitpay.com>
  Status: Complete
  Type: Specification
  Assigned: 2014-04-25
</pre>

==Abstract==

This BIP defines a structure for hierarchical deterministic P2SH multi-party
multi-signature wallets (HDPM wallets from now on) based on the algorithm
described in BIP-0032 (BIP32 from now on) and purpose scheme described in
BIP-0043 (BIP43 from now on).
This BIP is a particular application of BIP43.

==Motivation==

The structure proposed in this document allows for standard ways to create,
use, import, and store HDPM wallets. It allows to handle multiple parties sharing
an m-of-n wallet, on the following assumptions:
* n parties share an m-of-n wallet.
* Each party generates their master private keys independently.
* Multisig P2SH is used for all addresses.
* BIP32 is used to derive public keys, then create a multisig script, and the corresponding P2SH address for that script.
* Address generation should not require communication between parties. (Thus, all parties must be able to generate all public keys)
* Transaction creation and signing requires communication between parties.

This BIP will allow interoperability between various HDPM wallet implementations.

==Specification==

We define the following levels in BIP32 path:

<code>
m / purpose' / cosigner_index / change / address_index
</code>

Apostrophe in the path indicates that BIP32 hardened derivation is used.

Each level has special meaning described in the chapters below.

===Purpose===

Purpose is a constant set to 45, following the BIP43 recommendation.
It indicates that the subtree of this node is used according to this specification.

<code>
m / 45' / *
</code>

Hardened derivation is used at this level.


===Cosigner Index===

The index of the party creating a P2SH multisig address. The indices can
be determined independently by lexicographically sorting the purpose public
keys of each cosigner. Each cosigner creates addresses on its own branch,
even though they have independent extended master public key, as explained
in the "Address generation" section.

Note that the master public key is not shared amongst the cosigners. Only the
hardened purpose extended public key is shared, and this is what is used to
derive child extended public keys.

Software should only use indices corresponding to each of the N cosigners
sequentially. For example, for a 2-of-3 HDPM wallet, having the following
purpose public keys:
<pre>
03a473275a750a20b7b71ebeadfec83130c014da4b53f1c4743fcf342af6589a38
039863fb5f07b667d9b1ca68773c6e6cdbcac0088ffba9af46f6f6acd153d44463
03f76588e06c0d688617ef365d1e58a7f1aa84daa3801380b1e7f12acc9a69cd13
</pre>

it should use <code>m / 45 ' / 0 / *</code> for
<code>039863fb5f07b667d9b1ca68773c6e6cdbcac0088ffba9af46f6f6acd153d44463</code>,
<code>m / 45 ' / 1 / *</code> for
<code>03a473275a750a20b7b71ebeadfec83130c014da4b53f1c4743fcf342af6589a38</code>,
and <code>m / 45 ' / 2 / *</code> for
<code>03f76588e06c0d688617ef365d1e58a7f1aa84daa3801380b1e7f12acc9a69cd13</code>,
as dictated by their lexicographical order.


Software needs to discover all used indexes when importing the seed from
an external source. Such algorithm is described in "Address discovery" chapter.

Non-hardened derivation is used at this level.

===Change===

Constant 0 is used for external chain and constant 1 for internal chain (also
known as change addresses). External chain is used for addresses that are meant
to be visible outside of the wallet (e.g. for receiving payments). Internal
chain is used for addresses which are not meant to be visible outside of the
wallet and is used for return transaction change.

For example, if cosigner 2 wants to generate a change address, he would use
<code>m / 45 ' / 2 / 1 / *</code>, and <code>m / 45 ' / 2 / 0 / *</code> for a receive
address.

Non-hardened derivation is used at this level.

===Address Index===

Addresses are numbered from index 0 in sequentially increasing manner.
This number is used as child index in BIP32 derivation.

Non-hardened derivation is used at this level.

===HDPM Wallet High-level Description===
Each party generates their own extended master keypair and shares the
extended purpose' public key with the others, which is stored encrypted.
Each party can generate any of the other's derived public keys, but only
his own private keys.

===Address Generation Procedure===
When generating an address, each party can independently generate the N needed
public keys. They do this by deriving the public key in each of the different
trees, but using the same path. They can then generate the multisig script (by
lexicographically sorting the public keys) and the corresponding p2sh address.
In this way, each path corresponds to an address, but the public keys for that
address come from different trees.

====Receive address case====
Each cosigner generates addresses only on his own branch. One of the n
cosigners wants to receive a payment, and the others are offline. He
knows the last used index in his own branch, because only he generates
addresses there. Thus, he can generate the public keys for all of the
others using the next index, and calculate the needed script for the address.

Example: Cosigner #2 wants to receive a payment to the shared wallet. His last
used index on his own branch is 4. Then, the path for the next receive
address is <code>m/45'/2/0/5</code>. He uses this same path in all of the cosigners
trees to generate a public key for each one, and from that he gets the new
p2sh address.
====Change address case====
Again, each cosigner generates addresses only on his own branch. One of the
n cosigners wants to create an outgoing payment, for which he'll need a change
address. He generates a new address using the same procedure as above, but
using a separate index to track the used change addresses.

Example: Cosigner #5 wants to send a payment from the shared wallet, for which
he'll need a change address. His last used change index on his own branch is
11. Then, the path for the next change address is <code>m/45'/5/1/12</code>. He uses
this same path in all of the cosigners trees to generate a public key for each
one, and from that he gets the new p2sh address.


===Transaction creation and signing===
When creating a transaction, first one of the parties creates a Transaction
Proposal. This is a transaction that spends some output stored in any of the
p2sh multisig addresses (corresponding to any of the copayers' branches).
This proposal is sent to the other parties, who decide if they want to sign.
If they approve the proposal, they can generate their needed private key for
that specific address (using the same path that generated the public key in
that address, but deriving the private key instead), and sign it. Once the
proposal reaches m signatures, any cosigner can broadcast it to the network,
becoming final. The specifics of how this proposal is structured, and the
protocol to accept or reject it, belong to another BIP, in my opinion.

===Address discovery===

When the master seed is imported from an external source the software should
start to discover the addresses in the following manner:

# for each cosigner:
# derive the cosigner's node (<code>m / 45' / cosigner_index</code>)
# for both the external and internal chains on this node (<code>m / 45' / cosigner_index / 0</code> and <code>m / 45' / cosigner_index / 1</code>):
# scan addresses of the chain; respect the gap limit described below

Please note that the algorithm uses the transaction history, not address
balances, so even if the address has 0 coins, the program should continue with discovery.
Opposite to BIP44, each cosigner branch needs to be checked,
even if the earlier ones don't have transactions

===Address gap limit===

Address gap limit is currently set to 20. If the software hits 20 unused
addresses (no transactions associated with that address) in a row, it expects
there are no used addresses beyond this point and stops searching the address chain.

Wallet software should warn when user is trying to exceed the gap limit on
an external chain by generating a new address.


===Rationale===

This structure provides a general way of doing HDPM wallets between m-of-n
parties. Here are some explanations about the design decisions made.

The reason for using separate branches for each cosigner is we don't want
two of them generating the same address and receiving simultaneous payments
to it. The ideal case is that each address receives at most one payment,
requested by the corresponding cosigner.

==Examples==

{|
!cosigner_index
!change
!address_index
!path
|-
|first
|receive
|first
| m / 45' / 0 / 0 / 0
|-
|first
|receive
|second
| m / 45' / 0 / 0 / 1
|-
|first
|receive
|fifth
| m / 45' / 0 / 0 / 4
|-
|first
|change
|first
| m / 45' / 0 / 1 / 0
|-
|first
|change
|second
| m / 45' / 0 / 1 / 1
|-
|second
|receive
|first
| m / 45' / 1 / 0 / 0
|-
|third
|change
|tenth
| m / 45' / 2 / 1 / 9
|}

==Compatible wallets==

* [[https://copay.io|Copay wallet]] ([[https://github.com/bitpay/copay|source]])

==Reference==

* [[bip-0032.mediawiki|BIP32 - Hierarchical Deterministic Wallets]]
* [[bip-0043.mediawiki|BIP43 - Purpose Field for Deterministic Wallets]]
* [[https://www.mail-archive.com/bitcoin-development@lists.sourceforge.net/msg05156.html|Original mailing list discussion]]
