Hi everyone,

I'd like to propose a new native SegWit output type: Pay to Schnorr Key Hash (P2SKH).

== The problem ==

The two most relevant output types today each solve half the problem:
- P2WPKH has a compact 22-byte scriptPubKey, but uses ECDSA and puts the full 33-byte compressed public key in the witness (~108 witness bytes per input).
- P2TR uses Schnorr signatures (64-byte witness), but embeds the full 32-byte x-only public key directly in the scriptPubKey, making outputs 12 bytes larger than P2WPKH and exposing the key in every unspent output.

Neither type achieves both a compact output and a compact witness simultaneously.

== The proposal ==

P2SKH uses OP_2 <hash160(P.x)> as the scriptPubKey (22 bytes, same as P2WPKH). Spending requires a single 64-byte Schnorr signature. Verification works by key recovery: given the signature (R, s) and the challenge e = TaggedHash("P2SKH/challenge", R.x || hash160(P.x) || msg), the verifier recovers P = e^-1 * (s*G - R) and checks that hash160(P.x) matches the program. The sighash reuses the BIP341 transaction digest, so cross-version replay is prevented by the scriptPubKey commitment.

The result is the smallest combined footprint of any current single-key output type — a 22-byte output with a 64-byte witness — while keeping the public key off-chain until spending.

== Tradeoffs ==

The key-recovery step costs roughly one extra field inversion and scalar multiplication compared to direct Schnorr verification. This is the price of the 12-byte output size reduction.

== Open questions ==

1. BIP360 also claims witness version 2. If both proposals advance, one needs to move. Version 3 seems like a natural alternative for P2SKH.
2. Naming — "P2SKH" follows the established pattern but "P2TRKH" has been suggested to emphasise Schnorr/taproot lineage. Opinions welcome.

Full draft: https://github.com/sashabeton/bips/blob/3cb9e07984b571e9510370ab7e7218620be580dc/p2skh.md
PoC implementation: https://github.com/bitcoin/bitcoin/pull/34826

Thanks in advance for any feedback.

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