What Is a Deterministic Wallet?
A deterministic wallet is a storage program that allows users to generate and access crypto addresses from a single seed.
The seed acts as a master password used to recover fund access from all chains and accounts without having to save individual pairs of recovery keys.
Instead, users have a private seed phrase (12 to 24 secret words) to regenerate all wallets using a master public key. Users can still use individual key pairs to access accounts. The seed phrase is just a more convenient alternative to back up cryptocurrency wallets.
Most current wallets use a modern variant called hierarchical deterministic wallet (HD). They are designed in the Bitcoin Improvement Proposals BIP-32 and BIP-44 (2012-2014).
Earlier wallets were non-deterministic, meaning each pair of address keys was generated separately. Users had to store all of them to recover full access to funds.
Instead, HD and deterministic wallets derive all pairs from the seed phrase, automatically recovering address keys and balances from every chain and account:
The original Bitcoin Core wallet (~2009) was non-deterministic.
Bitcoin Armory Wallet (~2012) is a simple-deterministic example. Metamask (2016) is an HD wallet.
“As the name of deterministic wallet implies, the deterministic property means that all keys in a wallet are deterministically generated from a “seed” so that when necessary (e.g., the crash of the device hosting the wallet) the wallet owner can recover all the keys from the seed.”
– Hu, M.
How Does a Hierarchical Deterministic Wallet Differentiate From a Deterministic Wallet?
Despite better backup systems, investors often use multiple accounts to reduce risk (whether it’s in case of corrupted addresses or cyber-attacks).
Depending on whether the wallet is simple or hierarchical, the accounts will be linked to the same seed or independent ones, respectively.
First, here’s a structure example of classic, non-deterministic wallets:
A simple Deterministic Wallet would look like the following:
HD wallets can access all accounts with one seed:
Final Thoughts
Due to their convenience and flexibility, HD structures soon became the standard for modern wallets such as Ledger, Metamask, and Electrum. If users forget or lose a certain key pair, they can recover it from the seed phrase. If it’s not stored securely, however, this gives attackers the same convenience.
To prevent this, it’s recommended to implement two-factor authentication (2FA), multi-signature wallets, burner wallets for suspicious platforms, and other measures.
Hu, M. (2023). Post-Quantum Secure Deterministic Wallet: Stateless, Hot/Cold Setting, and More Secure. Iacr.org.
https://eprint.iacr.org/2023/062.pdf
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