Hierarchical deterministic wallet
A hierarchical deterministic wallet (or shortly HD wallet) is a modern type of cryptocurrency wallet that derives private keys from a seed. Unlike a legacy non-deterministic wallet, HD wallet combines flexibility of use, interoperability and enhanced privacy with the advantage of one-time backup.
What are the advantages of HD wallets?
HD wallets solve many problems of legacy cryptocurrency wallets that randomly generate private keys on the fly and require repeated backups. HD wallets bring the possibility of deriving all the addresses (public and private key pairs) from a single recovery seed. This means an 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 key pairs).
- 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. The owner of the master seed controls all assets in the wallet and can create whole branches of keypairs if he or she wants to let someone spend only part of the coins in the wallet.
- Accounting - The owner of the master seed can create public keys at any level of a wallet tree formation to let someone access the transaction history of a specific part of the wallet.