Bitcoin Core integrates the hierarchical deterministic wallet system (BIP32), making key backup and storage safer and easier

The Bitcoin Core team has finally integrated the simple BIP32 HD wallet system, which was written by Pieter Wuille on June 15, into Bitcoin Core.

BIP32, or "hierarchical deterministic wallet", is a type of wallet that was first introduced by Wuille in 2012. In the past three years, almost all wallet service providers have integrated the protocol, and the first wallets to support BIP32 include Trezor, Elctrum, mSIGNA and Mycelium.

Deterministic Wallets vs. Hierarchical Deterministic Wallets

A deterministic wallet is a built-in system that derives keys from a single starting point, usually a seed, which allows users to easily back up and store their wallets without requiring any additional information.

More importantly, when the server crashes or is attacked by hackers, although hackers can see account balances and transaction histories by accessing the master public key, they cannot execute transactions or consume account balances.

The logic of a deterministic wallet is quite simple. In a deterministic wallet system, users can derive a master public key from the wallet master private key or the seed, but they cannot derive a master private key from the master public key, thus eliminating the dangers caused by wallet vulnerabilities and security flaws.

A hierarchical deterministic wallet is a type of deterministic wallet that has an important feature - it has the ability to completely separate the generation of public and private keys to improve security protocols.

HD wallets allow web servers and platforms to select specific public keys in this type of situation. For example, we can imagine a merchant with 3 addresses that he uses to receive funds from buyers, and 4 addresses that he uses to transact with another customer.

The network server can choose three addresses that the merchant can then use to receive transactions from buyers and obtain the public keys of these addresses (just for efficiency and security purposes).

Eric Lombrozo, an early contributor to BIP32, pointed out that the key management of Bitcoin Core's initial wallet is very complex.

Lombroso said:

“You have to keep backing up your wallet as new addresses are generated to keep it safe, which is annoying. It’s also extremely difficult (if not impossible) to manage multiple instances of the same wallet on different devices.”

Lombroso’s own wallet, mSIGNA, was one of the first wallets to use BIP32, which makes key backup very simple and allows the maintenance of different instances of the same wallet on multiple devices.

Eric Lombrozo

Bitcoin Core's integration of BIP32 will encourage more platforms and wallet service providers to provide more convenient and secure HD wallets.

Michael Perklin, president of the Crypto Certification Association (C4), said:

“BIP32 provides a more secure way to accept payments through machines connected to the internet, as these addresses can be generated dynamically, without the need for private keys.”

“Deterministic wallets like those implementing BIP32 are required to comply with the Cryptocurrency Security Standard (CCSS). These wallets have a simple and secure backup that protects every key without human intervention, replacing wallets that require regular backups and have complex key management that is prone to human error.”

Lombroso has been advocating for more support and funding for Bitcoin Core and its work, saying:

“I am happy to see Bitcoin Core support BIP32. However, as the Bitcoin Core project focuses most of its work on implementing the Bitcoin backbone protocol, I hope that the wallet will be separated from Bitcoin Core and become a separate project.”