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Extending BIP-21 Labels with BIP-329 for Improved Address Management



As of November 2024, address reuse and inconsistent address allocation methods still pose significant challenges to user privacy and security. BIP-21, a standard URI scheme for Bitcoin payments that has proven useful, includes an optional labeling feature. However, this information exists solely within the QR code or URL schema, remaining stateless and inaccessible to the wallet after the payment request is constructed. This limitation means there is no persistent record of the label or purpose associated with each address.

This article proposes extending BIP-21 payment requests by storing the label as BIP-329 metadata, enabling purpose-specific, persistent labeling of addresses. By storing a BIP-21 label in the BIP-329 label node, wallets can ensure that the address will not be reused, even if it appears as the next address by index and/or has no current funds. If the BIP-21 label is empty, a placeholder such as "allocated" or "already used" can be added to indicate that the address is taken. This extension significantly improves address management in wallets and mitigates the risk of address reuse. Greater benefits can be achieved by syncing labels across wallets, for instance by using a tool like Labelbase.

Introduction

BIP-21 (Bitcoin Improvement Proposal 21) was developed to standardize Bitcoin payment requests through a URI scheme, making it easier to include essential transaction details like Bitcoin addresses, amounts, and optional fields like labels and messages. While widely adopted, BIP-21’s implementation varies significantly across wallets, and its limited label feature does not fully address address management issues. Most wallets currently select the next available unused address for payment requests without persistent metadata, leading to potential reuse of addresses.

To address this, we suggest using BIP-329, the standard for wallet metadata, to store and categorize address labels more effectively. Specifically, storing BIP-21 labels in BIP-329 metadata can help avoid reuse by explicitly categorizing addresses as "allocated" or "already used" if left empty. This article outlines a method to incorporate BIP-329 metadata tags to achieve better address allocation.

Challenges with Current Address Management

  • Address Reuse Risk: Without persistent labeling, wallets may accidentally reuse addresses, which can compromise user privacy. Allocating addresses without recording their specific purposes can lead to confusion or unintentional sharing of previously used addresses.
  • Inconsistent Labeling Across Wallets: BIP-21 provides a label field, but it’s often treated as a temporary, UI-only feature and is not persistently stored or referenced, making it ineffective for long-term address management.
  • Difficulty in Tracking Address Purposes: Due to the lack of metadata handling in BIP-21, many wallets treat addresses without funds as new each time, repeatedly generating them without tracking or categorizing their usage. This limitation complicates address management and contributes to inadvertent address reuse.
  • Offline Compatibility and Hardware Wallet Support: One advantage of this approach is that it operates entirely offline, eliminating the need for real-time checks on wallet balances or network connections. By storing address labels as metadata, wallets can manage address purposes locally, regardless of their connection status. This offline compatibility means that even hardware wallets, which prioritize security by staying disconnected from the internet, can benefit from persistent, purpose-specific address management using BIP-21 and BIP-329 combined.
    Storing address metadata as BIP-329 labels ensures that addresses marked as 'allocated' or 'used' are not accidentally regenerated or reused, providing a seamless and privacy-conscious solution for address management across both software and hardware wallets.

Proposed Solution: Extending BIP-21 with BIP-329 Labels

To address these issues, we propose extending the BIP-21 label feature by storing labels as BIP-329 metadata. BIP-329 allows wallets to store various metadata types, which we can leverage for improved address tracking. Here’s how it could work:

  • Label Creation: When generating a new address, wallets can apply a human-readable label using the BIP-21 URI scheme, providing immediate context for the transaction.
  • Persistent Label Storage: After allocation, if the BIP-21 label exists, it is stored directly in the BIP-329 label node, which indicates that the address is taken. If the BIP-21 label is left empty, a placeholder such as "allocated" or "already used" is added to the BIP-329 label, marking the address as single-use or designated for a specific purpose.
  • Enhanced Address Management: Wallets can reference these stored BIP-329 labels to avoid reusing any previously allocated addresses, thereby reinforcing single-use practices by default.

Benefits of Implementing BIP-329 with BIP-21

By extending BIP-21 labels with BIP-329, wallet developers can offer users an enhanced, privacy-conscious solution. This system allows for more granular management and categorization of addresses, preserving user privacy and providing a better experience.

In summary, extending BIP-21 labeling with BIP-329 allows wallets to:

  • Avoid address reuse through explicit labeling of used addresses
  • Track the intended usage and allocation history of each address
  • Provide a more consistent, secure, and user-friendly address management experience

Conclusion

Extending BIP-21 with BIP-329 metadata provides a practical pathway to improve address management in wallets. As the Bitcoin ecosystem evolves, it’s essential for wallet developers to review their BIP-21 implementations and adopt BIP-329 for metadata storage. By linking these use cases, wallets can actively prevent address reuse and enhance user privacy.

RFC, Xavier Fiecher