What are Hierarchical Deterministic (HD) Wallets?


Securing your cryptocurrency is an essential factor of participating in blockchain technology networks. This Ask an Expert reviews HD wallets, which created a greater security for your crypto tokens. Taylor explains it below and some of the important aspects of HD wallets. You can read the script from the video below! Be sure to like this video if you enjoyed it, and subscribe to our YouTube channel for more Ask an Experts!

What are HD wallets?

Hierarchical Deterministic (or HD for short) is way of automatically generating new payment addresses based a series of special calculations.

Do I need one?

As usual, the answer is both yes and no. Cryptocurriences like Bitcoin are not fully privacy preserving unless you’re very careful about address re-use. Reusing a payment address could allow someone to scan the blockchain and cluster together related transactions.

So HD wallets make me more secure?

Yes, in a few different ways. What’s perhaps more interesting is that HD wallets use a thing called a “seed phrase” to enable a more friendly user experience.

What’s a seed phrase do?

By itself seed phrases don’t do anything. Seeds can aid in the recovery, however, of a lost or stolen wallet. Essentially, your private key is transformed into a series of words–and that’s the seed phrase.

So it can be used to undo a payment?

No, that’s not the kind of loss I’m talking about. I’m talking about if someone has stolen your computer or phone containing your HD wallet. In that case, hopefully you have an extra password/PIN on your wallet software so the funds are safe. In this instance, you can quickly recover your funds to a new computer and transfer them to a new wallet completely for extra security.

Okay, so do I need both an HD wallet and seed phrase?

When you use an HD wallet, it will have an option to backup your seed phrase. That’s all you need to do if you restore it to the same program. There are more technical details behind how this all works, but we’ll save that for another time!

Check out our hardware wallet guide for more information on different types of wallets!

Originally posted June 8th, 2017


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