HD wallets. Why is it important?
HD is short for Hierarchical Deterministic.
What is the idea of HD?
Typically, bitcoin wallets generate each new bitcoin address from a unique random number, requiring you to make a new separate backup each time you create a new address. To avoid losses from lack of backups, such wallets tend to use a single bitcoin address for all transactions.
This way, all the bitcoin addresses created by such HD wallets are hierarchically determined (HD) from a single seed. It means you only need to be backed up once, and can be fully restored at any time in the future just from the backup of that single master seed. Seeds are typically serialized into human-readable words in a Mnemonic phrase.
There are number of HD wallets if you are interested in more anonymous and convenient way of working with your cryptocurrency you may choose Lumi wallet. Thanks to HD protocols, Lumi will keep all your funds safe and let your personality be anonymous.
What are the advantages?
Higher anonymity
The HD wallet user has one software wallet with one secret key. It is also called “a master key”, or “a seed.” By combining “a master key” with hash functions, we get an unlimited number of related addresses, and this combination is not visible to outsiders. Such new Bitcoin addresses can be called “affiliate addresses”.
The wallet generates lots of of public and private key pairs and automatically creates new “affiliate addresses” for each transaction.
Secret phrase is easier to remember
The “master key” can be any sequence of characters or a 12-word mnemonic phrase (in Lumi case). As long as you remember the passphrase, you have access to all the addresses. It is more convenient than storing secret keys for each address. These words are easy to write down and remember.
More convenient to back up
Early clients generate a buffer of fresh random private keys to be used as receiving and change addresses in the future. This has the effect of invalidating backups after a short period when the keypool buffer is exhausted. Deterministic wallets can generate an unlimited number of addresses on the fly and as such don’t suffer from this issue. As the addresses are generated in a known fashion rather than randomly some clients can be used on multiple devices without the risk of losing funds.
Thus, Hierarchical Deterministic (HD) wallet greatly improve your privacy by generating new addresses when you send and receive funds, and make your transaction activity and total balance very hard to track.
