Secure hierarchical Bitcoin wallet scheme against privilege escalation attacks

As the rising popularity of Bitcoin, people tend to use Bitcoin wallets to manage the keys for spending or receiving funds. Instead of generating randomly pairs of keys, which may need higher space complexity for key management, hierarchical deterministic (HD) wallets derive all the keys from a single seed, which is sufficient to recover all the keys, to reduce the complexity of key management. In an HD wallet, it allows users to generate child public keys from the parent public keys without knowing any of the corresponding private keys. This feature allows a permitted auditor to derive all the public keys for auditing. However, this feature makes HD wallets suffered from so-called privilege escalation attacks, where the leakage of any child private key along with its parent public key will expose the other child private keys. To confront with this security flaw, we propose a novel HD wallet scheme that gives out a signature with trapdoor hash functions instead of directly giving private keys for signing. Since it conceals private keys from any child nodes, it can prevent from privilege escalation attacks. Nevertheless, the proposed scheme also provides unlinkability between two public keys to achieve anonymity of user identities and high scalability to the derivations of huge amount of keys. Thus, the proposed scheme achieves user anonymity, public key derivation, and high scalability.