Cross-wallet backup compatibility in Bitcoin L2 ecosystems

[internetional]

From my point of view, a necessary requirement for a cryptocurrency wallet, from my point of view, is user independence from the developer. I am only willing to use wallets that preserve my ability to control my assets even if the wallet servers go offline and the developers stop maintaining the application.

In L1, this problem is relatively straightforward. Before using a wallet, you can check which derivation paths it uses. If this information is available, you can either find other wallets that support the same derivation paths or, if no such wallets exist, derive private keys from the seed phrase using those paths via Ian Coleman, and then import those private keys into a wallet that supports direct key import (for example, Blue Wallet).

In L2, things are not that simple.

In the Lightning Network, for example, very few wallets actually restore access to funds purely from a seed phrase. Phoenix is one of the few that can do this in principle, but I still remember a case when I could not restore access after reinstalling Phoenix on another device, and it turned out that the Phoenix seed phrase from Android was not compatible with Phoenix on iOS. Restoring funds via another developer's wallet is practically out of the question.

That said, a few years ago I noticed that three wallets built on Greenlight (Blockstream Green, Blitz, Relai) could interpret each other's seed phrases and even display transaction history. Although they still did not allow full control over funds created in another wallet (they only provided history access), this suggests that interoperable wallets are at least possible within the Greenlight architecture. However, two of these three wallets (Blitz and Relai) no longer use Greenlight, and in any case, they did not provide full user independence. If Greenlight servers go down, access to funds is still lost.

With other L2 systems, things should in theory be easier. But in practice, mismatches in backup formats still exist, and I do not have a clear framework for handling them. That is why I propose collectively building a database of L2 wallets whose backups are compatible with each other.

This topic was motivated by my experience with the Layerz wallet.

I have started collecting information on cross-wallet backup compatibility and would like to share it here, while also hoping others can help extend it.

Here is what I have so far:

Liquid Network
Aqua, Blockstream App, SideSwap - compatible with each other
Layerz, Bull - compatible with each other

Spark
Blitz, Cake - compatible with each other
Layerz - not compatible with any other wallet

Bark
Noah, Arké, Alby Hub - compatible with each other

Arkade
Arkade.Money, Chimera Wallet - compatible with each other via both private keys and seed phrases, they are also compatible with Layerz, but only via seed phrase
Lendasat, Bitboard - compatible with each other
Arksat - not compatible with any other wallet

Rootstock
Enkrypt, Exodus, Bitget Wallet, SafePal and a lot of multichain EVM wallets - compatible with each other

If you have information about other wallets and how their backups are interchangeable, please share it and I will add it to the first post. I think this database could be very useful for users across different L2 protocols.

[internetional]

Arkade.money wallet has added a new backup option via a seed phrase. This seed phrase is interchangeable with the Layerz wallet. This means Arkade.money is now compatible with Layerz when using a seed phrase as a backup, and with Chimera when using a private key. I have added this information to the first post.

I've also added information about wallets for Rootstock.

[internetional]

Chimera Wallet now also supports seed phrase backup. As a result, for the Arkade protocol, Arkade.Money and Chimera wallets are now fully interchangeable across all backup options. They are also interchangeable with Layerz, but only via seed phrase, since Layerz wallet does not support importing private keys from Arkade.Money and Chimera.

I have updated the opening post with this information.

[nc50lc]

In the Lightning Network, for example, very few wallets actually restore access to funds purely from a seed phrase. Phoenix is one of the few that can do this in principle, but I still remember a case when I could not restore access after reinstalling Phoenix on another device, and it turned out that the Phoenix seed phrase from Android was not compatible with Phoenix on iOS. Restoring funds via another developer's wallet is practically out of the question.

The issue with backup compatibility with Lightning is: Your channel(s) aren't directly created from the private keys derived from the seed phrase.
Rather, those are created with a MultiSig transaction, each transaction that goes into it updates its state, like how much is on each side.
And that isn't normally saved anywhere but only to the parties involved (local & remote node).

Also, letting users to restore a backup of the channel back into a working open channel is dangerous because the user can create two or more
instances of an active channel that could lead to being penalized for having an instance with outdated state (e.g.: if used to close the channel),
Unless all instances can be synced.

So, in most self-custodial wallets, its not possible to restore payment channels from the seed alone without a backup of the channel itself.

Some wallets use workarounds like adding an OP_RETURN output to the funding transaction to be able to restore a "static backup" of it.
In case a wallet can restore your channels from seed, the wallet is either using that feature, custodial under the hood or it's keeping a backup of the channels somewhere but will only let you to restore it on the same device.