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Deterministic Wallet

A type of cryptocurrency wallet in which keys and addresses are created from a single seed.

What Is a Deterministic Wallet?

In the past, Bitcoin wallets operated by generating Bitcoin addresses and private keys at random, whenever they were needed by the user.

This had several significant drawbacks, the most important being that — if the details of the wallet were lost — all of the keys and addresses would be lost along with it.

A deterministic wallet is built on a specific algorithm and seed. All of the keys and addresses created by a deterministic wallet are built from that seed. The practical result of this is that, as long as the user still has access to the seed, a new wallet can be created and all of the addresses and keys recovered — even in the event that the original wallet becomes corrupted or lost.

There are several other advantages to deterministic wallets. The first of these is the master public key feature. This key can be generated from a specific wallet's master private key, and can be used to produce all of the addresses created by the wallet — but crucially, none of the private keys. 

This means that a third-party user with the public key can view the balance of a wallet, but cannot transact with it. Further, deterministic wallets are hierarchical. This means that every private key generated by the seed can itself be used as a master private key which can be used as its own deterministic wallet and, therefore, used to create further keys.

Most major cryptocurrency wallets are now deterministic wallets. In particular, the extremely popular Electrum system is deterministic (however, unlike other options such as the BIP32, it is not hierarchical.)

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Deterministic Wallet

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