BIP 174, described in BIP-174, provides a standard format for Partially Signed Bitcoin Transactions (PSBTs). Think of a PSBT as a ‘collaborative transaction file’ that one or more participants can sign sequentially. This approach is very handy for hardware wallets, multi-signature setups, and offline signing workflows.

By separating transaction creation from the final signature, PSBT simplifies complex operations like coin joins or multi-device custody. Each step can be performed by different tools without losing track of critical metadata. The result is a more flexible and interoperable system for advanced Bitcoin transactions.