Specification for PSBT-Enabled Multisig Transactions in Paytaca Wallet

1. Objective:

Implement multisignature (multisig) functionality into the Paytaca Wallet, using Partially Signed Bitcoin Transactions (PSBTs). This implementation will allow multiple signers to sign a transaction, enhancing security, flexibility.

2. Background:

Multisignature wallets require multiple private keys to authorize a transaction. PSBT is an open standard that allows users to create, sign, and broadcast partially signed transactions, which is highly suitable for multisig wallets. Bitcoin Cash, using a P2SH address format, will allow multisig transactions to be created and signed using PSBT.

3. Features:

3.1. Create Multisig Wallet:

• Input: User specifies the number of total signers (M) and the required signers (N).
  • Example: 2-of-3 multisig (M=2, N=3) means two of the three signers are required to sign a transaction.
• Output: A P2SH address generated based on the provided M and N values, utilizing the public keys of the participants.
• The wallet will generate and store the public keys for the participants and will allow the import/export of these keys in the form of PSBT or raw public keys.

3.2. Transaction Creation (PSBT Format):

• Input: The wallet generates a PSBT that includes the following information:
  • Inputs: The UTXOs that are being spent.
  • Outputs: The recipient addresses and amounts.
  • Multisig Script: The script associated with the P2SH address (in the form of M of N).
• Output: The wallet will generate a PSBT file, which can be saved, shared, and signed by other participants.

3.3. Transaction Signing with PSBT:

• Input: Each signer can load the PSBT into the wallet and provide their signature using their private key.
• Output: Each signer adds their signature to the PSBT, creating a partially signed transaction. The PSBT will remain in a partially signed state until the required number of signatures is reached.
  • Once a signer has added their signature, the wallet will mark the PSBT as “signed by [signer].”
  • The process can be paused, resumed, and signatures can be added in any order.

3.4. Transaction Broadcasting:

• Once the PSBT has the required number of signatures, it will be finalized and broadcasted to the Bitcoin Cash network.
• The wallet will combine all signatures into the PSBT and broadcast it as a fully signed transaction.
• If any signatures are missing or invalid, the transaction will be rejected.

3.5. Key Management (PSBT & Multisig):

• The wallet stores the public keys of all participants in the multisig setup but never the private keys.
• Each signer must have access to their private key for signing.
• When a signer signs the PSBT, the private key remains confidential and is not exposed or transmitted over the network.

3.6. Multisig Address Format:

• The wallet should generate P2SH addresses for the multisig setup using the multisig script format, which will be used in the PSBT.
• Example format: bitcoincash:pq97ds60uzsgk4n68spqt9zfxr4r27pu4s02hz74xw

3.7. UI/UX for PSBT and Multisig:

• Provide a user-friendly interface that allows the user to:
  • Create a new multisig wallet and set the number of required signers and total signers.
  • Import public keys for each signer.
  • Generate a PSBT and share it with signers.
  • Load the PSBT and manage the signing workflow.
  • The UI should handle all PSBT-specific actions transparently to the user, providing clear feedback on the transaction status and signing progress.

**3.8. PSBT Sharing via Watchtower API:

• Input: Once a PSBT is generated, it can be shared securely with other participants using the Watchtower public API.
  • API Endpoint: /psbt
  • PSBT Upload: The PSBT is uploaded to the Watchtower server in its partially signed state. The Watchtower will store the PSBT temporarily until all signers have added their signatures.
• Output:
  • PSBT Retrieval: Each signer can retrieve the shared PSBT from the Watchtower server through a GET request to the same endpoint.
  • Progress Tracking: The Watchtower will track the signing progress (number of signatures).
  • Secure Transmission: The PSBT will be transmitted over HTTPS to ensure encryption and privacy during the sharing process.

Example Flow:

• Signer A generates a PSBT and uploads it to the Watchtower via the /psbt API.
• Signer B and Signer C can each access and sign the PSBT by using their own private keys through the same Watchtower API. Non-Paytaca participating wallets can also utilize the API.
• Once the required number of signatures is reached, the PSBT is marked as ready for broadcasting and can be finalized by Signer A.

3.9. Security:

• The private keys of all signers must remain confidential and must not be exposed in the wallet.
• Implement features such as timeouts or expiration dates for PSBT transactions to prevent them from lingering indefinitely.

4. Technical Requirements:

4.1. PSBT Integration:

• Implement PSBT (BIP174) functionality within the wallet, supporting the full lifecycle of a PSBT:
  • Creation: Generate PSBT with multisig script and necessary inputs/outputs.
  • Signing: Add signatures from multiple signers, ensuring that each signature is added properly without overriding others.
  • Finalization: Combine all signatures and finalize the PSBT into a fully signed transaction.
• Ensure that the wallet can import, export, and share PSBTs.

4.2. Address Generation:

• The wallet must generate P2SH addresses (multisig addresses) based on the public keys provided, with the script being of the form:
• M <public_key_1> <public_key_2> ... <public_key_n> N OP_CHECKMULTISIG
• The wallet will encode this script into a P2SH address and return it to the user.

4.3. Transaction Signing Process (PSBT):

• When a user selects to sign a transaction, the wallet should load the PSBT and allow the signer to sign it using their private key.
• Once a signature is added, the PSBT should be updated to include the new signature.
• The wallet should support verifying that the PSBT has the correct number of signatures before it is broadcast.

4.4. Error Handling and Transaction Validation:

• Properly handle errors such as missing signatures, invalid signatures, or network issues.
• Notify the user when the required signatures have been collected and when the transaction is ready for broadcasting.
• Display the signing status in the UI and give clear instructions on what actions need to be taken by each signer.

4.5. PSBT Security:

• Implement secure encryption for PSBT files when stored locally or shared between signers.
• Ensure that partial PSBTs can be signed without revealing sensitive data, such as private keys or unspent transaction outputs (UTXOs).

4.6. Testing & Validation:

• Conduct comprehensive testing to ensure PSBT handling works seamlessly with multisig transactions:
• Test the full process of creating, signing, and broadcasting PSBT transactions.
• Ensure that all signers can sign in any order and the transaction remains valid.
• Validate that the wallet correctly handles errors and edge cases (e.g., insufficient signatures, invalid scripts).

5. User Flow Example:

1. Create Multisig Wallet:

   • User selects "Create Multisig Wallet" from the wallet interface.
   • User specifies the number of required signers (e.g., 2 out of 3).
   • User adds the public keys of the other signers (either manually or by scanning QR codes).
   • Wallet generates a multisig P2SH address and displays it to the user.

2. Transaction Creation and PSBT Generation:

   • User creates a transaction or receive an unsigned transaction from a DAPP.
   • The wallet generates a PSBT, including the necessary inputs, outputs, and the multisig script.
   • The PSBT can be copied or downloaded and shared with other signers.

3. Transaction Signing:

   • Each signer signs the PSBT with their private key.
   • Once all required signatures are collected, the PSBT is finalized.

4. Transaction Broadcasting:

   • The wallet may or may not(e.g. if a DAPP created the transaction) broadcasts the fully signed PSBT to the Bitcoin Cash network.