What Is Hierarchical Deterministic Wallet Or HD Wallet?- A Guide For Beginners

Wallets are physical or software means to store digital currency in a safe and secure manner. They are available as physical devices as well as software for desktop and mobile platforms. They allow users to secure their currencies and transfer coins using public keys and private keys. HD Wallets are one of the best crypto wallets.

What Is HD Wallet?

Hierarchical deterministic wallets or HD wallets are the most modern type of crypto wallets. They provide better security than non-HD wallets. HD wallets can generate private and public keys from a single seed in a hierarchical order. This does not require the users to generate their own keys as in the case of non-HD wallets.

Working of HD Wallets

We are all aware that a wallet uses a public or private key pair to safely exchange currency. It increases the safety of the coins and the privacy of transactions. The users’ ability to produce key combinations becomes unmanageable as there are a lot of transactions taking place.

It is also difficult to keep the backup of every pair. The debut of HD wallets addresses this problem. It uses an SHA-256 hash algorithm to generate a hierarchical tree structure of private/public key pairs with the same seed. This reduced user efforts in generating keys manually. HD Wallets only need to keep the backup of the key pairs.

Advantages of HD Wallets

• Easy Backups: Due to the use of only a single master key, HD wallets require only a single backup that allows the user to restore the entire data in the future. The wallet’s hierarchical structure makes this possible. BIP 32 transfer protocol is used to create a child key from the parent seed. So when an HD wallet is restored, all the private keys are automatically driven by using the algorithm.
• Privacy: The user’s ability to generate several key pairs using an HD wallet allows for the preservation of the transaction’s anonymity and security. Since a user can use various keys to complete each transaction, the transaction’s history can be kept private. The use of a large number of public keys makes it impossible for someone to steal your address and coins.
• Storing Private keys offline: In an HD wallet, we can generate public keys without the need for private keys because all the public keys are generated from a single master key using algorithms. This makes storing private keys offline possible.
• Accounting: The HD wallet provides the user with complete access control. The user can generate a public key at any stage of the wallet in order to provide access to the transaction history at that particular period.

Common HD wallets

The most common HD wallets are:

1.     Ledger Nano X
2.     Trezor
3.     Keepkey
4.     Mycelium
5.     Jaxx
6.     Electrum
7.     Atomic Wallet

Thus HD wallets are a safe and secure way of storing and transacting with your digital currencies. They provide privacy and make the activities hard to track in the blockchain. Due to the use of a single seed, recovering lost data is also easy in an HD wallet and also provides complete control over the transactions.