White label cryptocurrency wallet: An Insight into HD wallet

An HD (Hierarchical Deterministic) wallet is a digital wallet that automatically generates a hierarchical structure of private and public keys, resolving the issue of users having to generate the keys on their own and remembering them.

Let’s delve into an HD Wallet

A simple digital wallet is used to store and transfer digital assets like tokens and coins. These wallets have a public address that is shared with the sender, and a private key that a user needs to spend the tokens stored on his wallet.

The public/private key combination is used to ensure safety of cryptocurrencies stored on the wallet. In addition, a user needs to repeatedly generate a random pair of private/public addresses, and create a backup each time a new pair of address is generated. As the number of transaction increases, it becomes more complicated and challenging to remember these addresses.

To eliminate this problem, HD wallets were introduced. An HD wallet generates all the addresses from a single master seed (justifying its name Hierarchical). Every HD wallet uses a standard 12-word master seed key, and each time this seed is extended at the end by a counter value, it allows automatic generation of unlimited number of addresses.

HD wallet eliminates the need for constant key generation, allowing users to take back-up of one seed key only.

Working of HD Wallets

An HD Wallet works in a pretty straightforward manner, based on deterministic Maths which is defined under Bitcoin Improvement Protocol 32 (BP 32). By utilizing BP 32 Maths, the HD wallets generate a hierarchical tree-like private key structure which is originated from the seed of 12 or 18 words.

12-word mnemonic seed is used to generate the first master private key, which is then iterated with counters (+1, +2, +3), to generate private keys and bitcoin addresses for further use.

A User only needs to back-up this 12-word mnemonic seed since all other keys are ultimately generated from 12-word mnemonic seed. In order to restore HD wallets, a user is required to enter 12-word seed correctly, after which wallet takes a moment to determine all the private/public key pairs.

Hierarchical wallets are called so as the key pairs can be determined automatically using the 12 word mnemonics.

Advantages of HD wallet

Many standard cryptocurrency wallets have incorporated the concept of HD wallets for various cryptocurrencies. Being a successor to standard wallets, HD wallets certainly have more benefits compared to other wallets, including the following:

• You can keep your funds safe by just remembering the seed-key.
• Single seed-key is used to derive rest of the key pairs.
• N-Number of public keys can be generated, which removes the concept of re-using addresses.
• If you somehow lose back-up of your private key, the hierarchical tree structure assures that other addresses still remain safe.
• You can restore your wallet using any BIP32 wallet using your seed.

Take away

HD wallets have eliminated the need for users to constantly generate and wait for the secure keys. The numerous benefits of HD wallets are one of the reasons behind its increasing popularity and adoption worldwide. People, nowadays, prefer to build white label cryptocurrency wallet to save development time and cost.

If you are looking for white label cryptocurrency wallet development services, we can help. We provide white label mobile HD wallets fostered with industry-leading features like biometric authentication, multi-sign support, QR code support for automatic scanning of wallet address, multi-cryptocurrency support, and more. Our white label process ensures accelerated deployment and world-class experience of the best cryptocurrency wallet.