A hierarchical deterministic wallet is a system of deriving addresses and keys from a single starting point called a seed. Deterministic indicates that for the same seed, the same addresses and keys will be generated, and hierarchical indicates that the addresses and keys will be generated in the same order. This makes it easier to back up and store multiple accounts, as you just have to store the seed, not the individual keys and addresses.
Why will users need multiple accounts?
You must be wondering why users will need multiple accounts. The reason is to hide their wealth. The balance of accounts is available publicly in the blockchain. So, if user A shares an address with user B to receive some ether, then user B can check how much ether is present in that address. Therefore, users usually distribute their wealth across various accounts.
You must be wondering why users will need multiple accounts. The reason is to hide their wealth. The balance of accounts is available publicly in the blockchain. So, if user A shares an address with user B to receive some ether, then user B can check how much ether is present in that address. Therefore, users usually distribute their wealth across various accounts.
There are various types of HD wallets, which differ in terms of seed format and the algorithm to generate addresses and keys, for instance, BIP32, Armory, Coinkite, Coinb.in, and so on.
What are BIP32, BIP44, and BIP39?
A Bitcoin Improvement Proposal (BIP) is a design document providing information to the Bitcoin community, or describing a new feature for Bitcoin or its processes or environment. The BIP should provide a concise technical specification of the feature and a rationale for the feature. At the time of writing this book, there are 152 BIPS (Bitcoin Improvement Proposals). BIP32 and BIP39 provide information about an algorithm to implement an HD wallet and mnemonic seed specification respectively. You can learn more about these at https://github.com/bitcoin/bips.
A Bitcoin Improvement Proposal (BIP) is a design document providing information to the Bitcoin community, or describing a new feature for Bitcoin or its processes or environment. The BIP should provide a concise technical specification of the feature and a rationale for the feature. At the time of writing this book, there are 152 BIPS (Bitcoin Improvement Proposals). BIP32 and BIP39 provide information about an algorithm to implement an HD wallet and mnemonic seed specification respectively. You can learn more about these at https://github.com/bitcoin/bips.