diff --git a/lib/wallet/api/http/Cardano/Wallet/Api/Http/Shelley/Server.hs b/lib/wallet/api/http/Cardano/Wallet/Api/Http/Shelley/Server.hs
index e3f1082cbc4..1790991457a 100644
--- a/lib/wallet/api/http/Cardano/Wallet/Api/Http/Shelley/Server.hs
+++ b/lib/wallet/api/http/Cardano/Wallet/Api/Http/Shelley/Server.hs
@@ -3119,7 +3119,7 @@ toMetadataEncryptedKey
 toMetadataEncryptedKey apiEncrypt =
     fst $ generateKeyForMetadata (BA.convert $ unPassphrase passphrase) Nothing
   where
-    (ApiEncryptMetadata (ApiT passphrase)) = apiEncrypt
+    (ApiEncryptMetadata (ApiT passphrase) _) = apiEncrypt
 
 -- When encryption is enabled we do the following:
 -- (a) recreate encrypted payload from chunks
diff --git a/lib/wallet/api/http/Cardano/Wallet/Api/Types.hs b/lib/wallet/api/http/Cardano/Wallet/Api/Types.hs
index 7dc967a4549..58689bfc18e 100644
--- a/lib/wallet/api/http/Cardano/Wallet/Api/Types.hs
+++ b/lib/wallet/api/http/Cardano/Wallet/Api/Types.hs
@@ -197,6 +197,7 @@ module Cardano.Wallet.Api.Types
     , DRep (..)
     , DRepKeyHash (..)
     , DRepScriptHash (..)
+    , EncryptMetadataMethod (..)
 
     -- * API Types (Byron)
     , ApiByronWallet (..)
@@ -1216,8 +1217,13 @@ data ApiMultiDelegationAction
     deriving (Eq, Generic, Show)
     deriving anyclass NFData
 
-newtype ApiEncryptMetadata = ApiEncryptMetadata
-    { passphrase :: ApiT (Passphrase "lenient") }
+data EncryptMetadataMethod =  AES256CBC | ChaChaPoly1305
+    deriving (Eq, Generic, Show)
+    deriving anyclass NFData
+
+data ApiEncryptMetadata = ApiEncryptMetadata
+    { passphrase :: ApiT (Passphrase "lenient")
+    , enc :: Maybe EncryptMetadataMethod }
     deriving (Eq, Generic, Show)
     deriving (FromJSON, ToJSON) via DefaultRecord ApiEncryptMetadata
     deriving anyclass NFData
@@ -2258,6 +2264,24 @@ instance ToJSON ApiStakeKeyIndex where
 instance FromJSON ApiStakeKeyIndex where
     parseJSON val = ApiStakeKeyIndex <$> parseJSON val
 
+instance ToJSON EncryptMetadataMethod where
+    toJSON AES256CBC = "base"
+    toJSON ChaChaPoly1305 = "chachapoly1305"
+instance FromJSON EncryptMetadataMethod where
+    parseJSON t =
+        parseBase t <|> parseChaChaPoly1305 t
+      where
+        parseBase = withText "base" $ \txt ->
+            if txt == "base" then
+                pure AES256CBC
+            else
+                fail "'base' is expected."
+        parseChaChaPoly1305 = withText "ChaChaPoly1305" $ \txt ->
+            if txt == "chachapoly1305" then
+                pure ChaChaPoly1305
+            else
+                fail "'chachapoly1305' is expected."
+
 instance ToJSON ApiVoteAction where
     toJSON Abstain = "abstain"
     toJSON NoConfidence = "no_confidence"
diff --git a/lib/wallet/integration/src/Test/Integration/Scenario/API/Shared/Transactions.hs b/lib/wallet/integration/src/Test/Integration/Scenario/API/Shared/Transactions.hs
index a9627b43bd2..caafc390ceb 100644
--- a/lib/wallet/integration/src/Test/Integration/Scenario/API/Shared/Transactions.hs
+++ b/lib/wallet/integration/src/Test/Integration/Scenario/API/Shared/Transactions.hs
@@ -3392,7 +3392,7 @@ spec = describe "SHARED_TRANSACTIONS" $ do
         let metadataToBeEncrypted =
                 TxMetadataWithSchema TxMetadataNoSchema metadataRaw
         let encryptMetadata =
-                ApiEncryptMetadata $ ApiT $ Passphrase "metadata-secret"
+                ApiEncryptMetadata (ApiT $ Passphrase "metadata-secret") Nothing
         let payloadMetadata = Json [json|{
                 "encrypt_metadata": #{toJSON encryptMetadata},
                 "metadata": #{toJSON metadataToBeEncrypted}
diff --git a/lib/wallet/integration/src/Test/Integration/Scenario/API/Shelley/TransactionsNew.hs b/lib/wallet/integration/src/Test/Integration/Scenario/API/Shelley/TransactionsNew.hs
index 9e34096aedb..1ac628d1193 100644
--- a/lib/wallet/integration/src/Test/Integration/Scenario/API/Shelley/TransactionsNew.hs
+++ b/lib/wallet/integration/src/Test/Integration/Scenario/API/Shelley/TransactionsNew.hs
@@ -5248,7 +5248,7 @@ spec = describe "NEW_SHELLEY_TRANSACTIONS" $ do
         let metadataToBeEncrypted =
                 TxMetadataWithSchema TxMetadataNoSchema metadataRaw
         let encryptMetadata =
-                ApiEncryptMetadata $ ApiT $ Passphrase "metadata-secret"
+                ApiEncryptMetadata (ApiT $ Passphrase "metadata-secret") Nothing
         let payload = Json [json|{
                 "encrypt_metadata": #{toJSON encryptMetadata},
                 "metadata": #{toJSON metadataToBeEncrypted}
diff --git a/lib/wallet/test/unit/Cardano/Wallet/Api/TypesSpec.hs b/lib/wallet/test/unit/Cardano/Wallet/Api/TypesSpec.hs
index a8af2cee7de..e5db7f21c93 100644
--- a/lib/wallet/test/unit/Cardano/Wallet/Api/TypesSpec.hs
+++ b/lib/wallet/test/unit/Cardano/Wallet/Api/TypesSpec.hs
@@ -249,6 +249,7 @@ import Cardano.Wallet.Api.Types
     , DRep (..)
     , DRepKeyHash (..)
     , DRepScriptHash (..)
+    , EncryptMetadataMethod (..)
     , Iso8601Time (..)
     , KeyFormat (..)
     , NtpSyncingStatus (..)
@@ -1988,8 +1989,13 @@ instance Arbitrary TxMetadataWithSchema where
     <$> elements [TxMetadataNoSchema, TxMetadataDetailedSchema]
     <*> arbitrary
 
+instance Arbitrary EncryptMetadataMethod where
+    arbitrary = elements [AES256CBC, ChaChaPoly1305]
+
 instance Arbitrary ApiEncryptMetadata where
-    arbitrary = ApiEncryptMetadata <$> arbitrary
+    arbitrary = ApiEncryptMetadata
+        <$> arbitrary
+        <*> arbitrary
 
 instance Arbitrary DRep where
     arbitrary = do
diff --git a/specifications/api/swagger.yaml b/specifications/api/swagger.yaml
index 6c462662694..6272001abd0 100644
--- a/specifications/api/swagger.yaml
+++ b/specifications/api/swagger.yaml
@@ -1751,17 +1751,28 @@ x-transactionMetadata: &transactionMetadata
   # propertyNames:
   #   pattern: '^[0-9]+$'
 
+x-encryptionMethod: &encryptionMethod
+  type: string
+  enum:
+    - base
+    - chachapoly1305
+
 x-encryptMetadata: &encryptMetadata
   description: |
-    If used then metadata in transaction is going to be encrypted
-    via AEAD scheme using ChaCha20 and Poly1305 (see RFC 7539).
-    PBKDF2 password stretching is used to get a 32-byte symmetric key.
-    PBKDF2 encryption using HMAC with the hash algorithm SHA512 is employed here.
+    If used then metadata in transaction is going to be encrypted by either
+    (a) base which is AES 256 using CBC mode or
+    (b) AEAD scheme using ChaCha20 and Poly1305 (see RFC 7539).
+    PBKDF2 password stretching is used to get a 32-byte secret key and 16-byte iv
+    needed in (a) scheme.
+    PBKDF2 encryption algorithm using HMAC with the hash algorithm SHA256 is employed
+    using 10000 iterations. Nosalt is used at this moment. Randomized version with
+    salt is to be added in the future.
     The encrypted metadata is going to be stored in blockchain as a consequence.
   type: object
   required:
     - passphrase
   properties:
+    enc: *encryptionMethod
     passphrase: *lenientPassphrase
 
 x-transactionTTL: &transactionTTL
@@ -4788,6 +4799,17 @@ x-errCreatedInvalidTransaction: &errCreatedInvalidTransaction
       type: string
       enum: ['created_invalid_transaction']
 
+x-errInvalidMetadataDecryption: &errInvalidMetadataDecryption
+  <<: *responsesErr
+  title: invalid_metadata_decryption
+  properties:
+    message:
+      type: string
+      description: The encrypted metadata has either wrong structure, or cannot be decrypted or decoded.
+    code:
+      type: string
+      enum: ['invalid_metadata_decryption']
+
 x-errForeignTransaction: &errForeignTransaction
   <<: *responsesErr
   title: foreign_transaction
@@ -5904,6 +5926,13 @@ x-responsesDecodedTransaction: &responsesDecodedTransaction
     content:
       application/json:
         schema: *ApiDecodedTransaction
+  403:
+    description: Forbidden
+    content:
+      application/json:
+        schema:
+          oneOf:
+            - <<: *errInvalidMetadataDecryption
 
 x-responsesSubmitTransaction: &responsesSubmitTransaction
   <<: *responsesErr400