Many Bitcoin Wallets today are HD Wallets. But what does that actually mean?
HD stands for „hierarchical and deterministic“. HD Wallets consist of many private keys that do not exist independently of each other, but are arranged in a hierarchy. In addition, these keys are not generated on the basis of random numbers – as is customary – but are derived from a certain value in a deterministic way, i.e. following fixed rules. This original value, which is itself randomly generated for a new wallet, is also called „seed“.
Ethereum code for more privacy and comfort
HD Wallets were invented to solve two problems of classic wallets. To
One was previously often routinely used as a private key and the associated Ethereum code for multiple transactions. Transaction change was returned to an address already in use. This is bad for privacy – outsiders can more easily associate different transactions with each other, and for example estimate how much money you have available or what values you usually move.
On the other hand, each time new private keys were generated, a new backup had to be made. This is tedious and cumbersome, and increases the likelihood that backups will not be created promptly or not at all, or stored in an unsafe way for convenience.
So how do Bitcoin trader solve these problems?
You can imagine the whole thing in a very simplified way: There is a
Original value to which a positive Bitcoin trader review is added. From this combined value, a hash is calculated that acts as the basis for an actual private key. These hashes do not allow inference to the base value, nor do they have a
Connection to each other. If you know the base value, however, you can append
of consecutive numbers and perform the hash operation to calculate all hashes.
In reality the whole thing is a bit more complex, but the basic mechanism is the same. How exactly the calculation works can also be read in the specification, BIP32.
With the help of this mechanism, a HD Wallet can now generate any number of private keys and associated addresses from a single value. If you have a backup of this value, all previously generated keys are covered – as well as all keys that will be generated in the future. This solves the problem, because a backup only has to be created once and stored securely.
Thanks to a simple, never-ending stream of fresh Bitcoin addresses, an HD Wallet can now easily avoid the multiple use of an address. After each
incoming transaction, a new receiving address is generated. For each outgoing
transaction, a new address is generated for the change. Users can of course
can still accept several transactions at one receiving address, but it is no longer necessary and is largely avoided in regular operation. There are two very common extensions of the standard for HD Wallets. One of them refers to the point of hierarchy. BIP44 defines how a structure can be used for different