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.
Trezor is one of the first hierarchical deterministic wallets brought to the market. TBD
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. 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.