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

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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.

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.

HD Wallet

Working of HD Wallets

We all know that in a wallet, the public or private key pair is used to securely transact with the currencies. It increases the safety of the coins and the privacy of transactions. As a large number of transactions are conducted, it is unmanageable for the users to generate key combinations.

It is also difficult to keep the backup of every pair. HD wallets are introduced to solve 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. They 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. This is made possible because of the hierarchical nature of the wallet. BIP 32 transfer protocol is used to create 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: As the user can generate a number of key pairs using an HD wallet, the privacy and security of the transaction can be maintained. A user can use different keys for making each transaction thus the history of the transaction can be kept as a secret. 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 of lost data is also easy in an HD wallet and also provides complete control over the transactions.

Gerald Rene is a journalist based in the US and the former managing editor of a cryptocurrency news outlet. He has been involved in the cryptocurrency industry for over three years. He has written for many outlets and contributed to cybersecurity and technology publications. And his passion currently lies within scalable securities and stability protocols to help grow cryptocurrency investment and bring mass adoption.

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