Hierarchical deterministic wallets or HD wallets solve some of the problems of standard cryptocurrency wallet. In standard wallet it is required to repeatedly generate a random pair of private/public addresses and it is necessary to backup these private keys all the time. HD wallets bring the possibility of deriving all the addresses (public/private keypairs) from a single recovery seed. This means HD wallet needs only one backup. The advantages of hierarchical deterministic wallets over standard cryptocurrency wallets are:
- Easy backups - if you control the recovery seed, you can generate the entire tree of children keys(public/private keypairs)
- Storing your private keys offline - possibility to derive the entire tree of public keys(addresses) from a parent public key without needing any private keys
- Access controls - Hierarchical deterministic wallets are arranged in a tree formation. Owner of master seed/key controls all bitcoins in the wallet and can create whole branches of keypairs if he/she wants to let someone spend only part of the coins in the wallet.
- Accounting - Owner of master seed/key can create public keys at any level of a wallet tree formation to let someone access transaction history of the specific part of the wallet.