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Securing your cryptocurrency is an essential factor of participating in blockchain technology networks. This Ask an Expert reviews Hierarchical Deterministic wallets, or HD wallets for short. They create a greater security for your cryptocurrency. Taylor explains it all, along with some of the important aspects of HD wallets in the video (or read the script below)!
What are Hierarchical Deterministic 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 is perhaps more interesting is that Hierarchical Deterministic wallets use a thing called a “seed phrase” to enable a more friendly user experience.
What does a seed phrase do?
By itself, a seed phrase doesn’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!