Wallets that change public address

These are the hierarchical deterministic (HD) wallets.

Once you have used a wallet address to receive funds, a new one will be generated for you to use. These addresses, also known as public keys, are still governed by a single key pair. This means that previous addresses you have used can still be used completely and that you will not lose control of them.

The key pair that governs all its addresses is known as the extended key pair, which consists of the extended public key (xpub) and the extended private key (xpriv). The more important of the two would be the extended private key. This key is the basis from which all the private keys of your addresses are derived. Or in other words: the extended private key is the master key of all private keys belonging to an account. This also means that if someone could get their hands on your extended private key, they could access all the funds in your account.

In contrast, the extended public key can be used to view the balance of all your different addresses. For optimal privacy, it is recommended that you do not share it. This extended public and private key pair is only used in crypto currencies that make use of hierarchical deterministic portfolios; it is not used in cryptographic assets that do not use changing addresses.

What are the benefits of using an HD wallet?

The change purse adds two interesting advantages. The most obvious advantage is increased privacy. Block chains are public ledgers, where anyone can see all transactions and balances. By having several addresses, one would still not be able to know his exact balance.

For example, let’s say you have a blog and you allow donations of cryptomoney. You would share one of your addresses on your blog page so that everyone can send you some crypto currencies if they wish. However, since the rest of your balance is at other addresses, you would still have no idea how much in cryptomonies you own.

Another reason is greater security. As mentioned above, whoever has access to the private keys of one address would have access to the funds in one direction. As they would have diversified their funds in several directions, they would need to obtain several private keys to access all their cryptographic assets.

BIP32 — Hierarchical deterministic portfolios

This BIP describes a general structure of the hierarchical deterministic portfolio (HD portfolio). In particular, it defines how to derive the private and public keys of a portfolio from a binary master seed (m) and an ordered set of indices.

BIP39 — Mnemonic code to generate deterministic keys

This BIP describes the implementation of a recovery seed and its relationship to the binary master seed BIP32. It consists of two parts: 1) the generation of the recovery seed and 2) the conversion into a binary master seed m including the optional application of a passphrase during the conversion.

BIP44 — Multiple Account Hierarchy for Deterministic Portfolios

This BIP defines an implementation of an HD portfolio based on BIP32 and BIP43. In particular, it describes the multi-currency portfolio structure for P2PKH addresses.

BIP49 — Derivation scheme for accounts based on P2WPKH-nest in P2SH

This BIP defines an implementation of an HD portfolio for P2WPKH-in-P2SH SegWit addresses (e.g. 3 addresses in Bitcoin).

BIP84 — Derivation Scheme for P2WPKH-based Accounts

This BIP defines an implementation of an HD portfolio for P2WPKH SegWit native addresses (e.g., bc1 addresses in Bitcoin).

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