HD Wallet

An HD, or hierarchical deterministic, wallet is a system that allows an initial seed phrase to govern subsequent key and address ownership. Standard wallets generate both change addresses and new addresses randomly, which creates new private keys for every transaction. In a standard wallet, if a newly generated private key is lost, it cannot be derived from previous keys or inputs of that wallet. In an HD wallet, an initial seed phrase (typically 8-24 words) functions as a master key such that private keys generated after the initial seeding are regenerable from the initial seed phrase. This system significantly simplifies the key management requirements from a user’s perspective, though introduces a single point of vulnerability.