What is an HD wallet?

In short

An HD wallet, or hierarchical deterministic wallet, derives all of its private keys and addresses from one seed, in a tree structure defined by the Bitcoin standard BIP-32. One backup of the seed restores every key the HD wallet has used or will use.

Also called
Hierarchical deterministic wallet, Deterministic wallet, BIP-32 wallet
Family
Crypto and trading
Facts checked

How an HD wallet derives keys

The seed produces a master key, and each key in the tree can produce child keys by a fixed calculation. A derivation path such as m/44'/0'/0'/0/5 names one key by its position, level by level.

BIP-32 pairs each key with a chain code to make an extended key. An extended public key can derive child public keys, and so new receiving addresses, without the private keys being present.

Two companion standards complete the picture. BIP-39 turns the seed into a mnemonic sentence of 12 to 24 words, and BIP-44 fixes the levels of the path: purpose, coin type, account, change and address index.

Why HD wallets matter to an exchange or payment product

A platform can give every customer, or every invoice, a fresh deposit address from one extended public key held on an online server. The private keys stay offline, and incoming payments are matched to customers by address.

The design has a known weakness, set out in BIP-32 itself. A parent extended public key together with any non-hardened child private key is enough to work out the parent private key, so hardened derivation is used for the upper levels and extended public keys are treated as sensitive.

Recovery software scans addresses in order and stops after a run of unused ones, 20 in BIP-44. A wallet that skips far ahead can therefore appear to have lost funds when restored.

Where an HD wallet shows up in a platform

Modules that do the work

Platforms that need it

Where it is written

The laws and standards this page's facts come from.

General information, not legal advice: what applies to you depends on your services and your market.

Every term

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