Hierarchical Deterministic Wallets

Some Hierarchical Deterministic Wallets (also known as HD/Hardware Wallets using BIP 32 Transfer Protocol) you may be familiar with are:

  • Ledger Nano S
  • Trezor
  • KeepKey
  • Cool Wallet S
  • Jaxx
  • Electrum
  • Atomic Wallet

The functionality with HD wallets make it simple in that you do not need to back up every address/key inside your wallet. HD wallets use a “seed key”, and the seed key is the only key you ever need to back up if you need to recover the Wallet at a future date (if you had a new computer, re-install, duplicate wallet for example). The master key is capable of recovering every private key below it but you can not go from a child key to the parent key.

Any additional keys that are created from the master key (the parent), are called children (the child). This transfer protocol is called BIP 32, and the wallets as mentioned above are called HD Wallets. (this is also classed as a Type 2 Deterministic Wallet).

Hierarchical Deterministic Wallets are more secure because they generate many receiving addresses for every transaction. In addition because of the unique algorithm from the master seed, if for any reason your wallet corrupts or is unrecoverable, then you only need to re-apply the master seed and all of the addresses along with your private keys will be re-populated back into your wallet just like they were, originally from the original wallet.

Make sure that you back your master seed phrase up. Typically 12 to 24 words that you should never ever lose or misplace. Normally your Hardware Wallet comes with a paper entry form. However its worth recommending that you use a a Steel Wallet for the ultimate permanent/weather proof/fire resistant solution.