Deterministic Wallet

What Is a Deterministic Wallet?

A deterministic wallet is a kind of bitcoin wallet that generates keys and addresses from a single seed. Previously, Bitcoin wallets worked by creating Bitcoin addresses and private keys at random whenever the user required them. Unfortunately, this had numerous serious downsides, the most important of which was that if the wallet's details were lost, all of the keys and addresses would indeed be lost.

Features of a Deterministic Wallet

A deterministic wallet is based on a particular algorithm and seed. All keys and addresses generated by a deterministic wallet are based on that seed. As a result, as long as the user has access to the seed, a new wallet may be generated and all of the addresses and keys restored – even if the previous wallet becomes corrupted or lost.

Advantages Of Deterministic Wallets

There are also other benefits of using deterministic wallets. The master public key feature is the first of these. This key can also be generated from a single wallet's master private key and used to generate all of the wallet's addresses — but importantly, none of the private keys. 

This indicates that a third user with the public key can examine a wallet's balance but not transact with it. Deterministic wallets are also hierarchical. This means that any private key created by the seed can be used as a master private key, acting as its deterministic wallet and thus being used to generate further keys. 

The majority of the significant cryptocurrency wallets now are deterministic wallets. The immensely popular Electrum system, in particular, is deterministic. However, unlike other possibilities such as BIP32, it is not hierarchical.