A major variant of a classic cryptocurrency wallet is the HD wallet (hierarchical deterministic wallet). HD wallets formulate a mechanism where private and public addresses are derived from a seed or a master key. They make use of patterns that prevent other users from guessing your particular combination or password.
Typically, cryptocurrency wallets initiate a new wallet address from a unique random numeral. It even formulates a new separate backup every time a new wallet address is generated. Generally, a cryptocurrency wallet development company tends to develop a single bank up which is fully restored from the backup of the single master seed. Seeds are arranged in a format of readable words in a mnemonic phrase.
Indeed, these are referred to as hierarchical deterministic wallets because they generate a hierarchical tree-like structure of private and public keys. The nodes can also be termed as infinite children or grandchildren (not like humankind). This signifies that it supports numerous accounts of different cryptocurrencies, with each expressing a unique address.
Cryptocurrency wallet development companies analyzed the gap of security and anonymity and thus articulated a structure to improve the security of tokens.
The functionality of HD wallets
For the working of the HD wallet, users mainly require a private key and public address for the transactions of crypto assets. The combination of public and private keys ensures the safety and privacy of your transactions. As the number of combinations grows, storage and backup become complicated with every new purchase.
Thus professional cryptocurrency wallet development companies work on a special algorithm for managing new pairs of public and private keys. They use the SHA-256 hash algorithm to produce a tree-like structure without any errors.
Crypto wallet development companies that provide HD wallets usually implement BIP (Bitcoin Improvement Proposal) 32/39 or 44 to derive the private keys. This protocol enables the creation of childlike keys in a hierarchy.
The HD system generates a new wallet by using the same seed. This element even saves your wallet from the corrupt drive. It is a more convenient option and easy to remember. You may restore your address and private keys by using the same seed key.
Advantages of Hierarchical Deterministic Wallet
HD wallet comes with a list of various advantages which is why the professionals of a cryptocurrency wallet development company harness the hierarchical deterministic approach. The lists of advantages are mentioned below:
- Higher anonymity
Sharing your access to a cryptocurrency wallet is like sharing your bank account credentials with strangers. You may never be able to see your cryptocurrency again if you lose your access to a private key. Thus, security is of the utmost importance for any wallet.
The user of the HD wallet has access to a secret key — also known as a seed or the master key. When the master key combines with the hash functions, an unlimited number of public addresses are created. With the number of private/public keys, infinite addresses can be created. Thus every time you initiate a cryptocurrency transaction, a different set of addresses will be generated. You may use the different public addresses for every transaction; therefore it eliminates every chance to recognize the user, thus making the overall activity anonymous.
- Easy to remember
The secret phrase in a crypto wallet is easy to remember. The master key is a sequence of characters or a 12, 18 or 24-word mnemonic phrases. It is convenient to remember the passphrase.
- More convenient for backup
In the conventional cryptocurrency wallet, every client needs to generate a backup and store them in case of an emergency. This leads to the invalidating space as the space for the key pool is exhausted in a shorter time. On the other hand, the deterministic wallet generates unlimited addresses in a known fashion and a single backup is created. It further solves the problem of losing funds.
Hierarchical deterministic wallets are the most reliable wallets to store coins and tokens. They offer the security of transactions, which makes it unfeasible to track them on the blockchain. It provides an additional feature for the backup of the seed key. This mechanism provides you more control over your transactions.
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