Deterministic wallets or Hierarchal Deterministic (HD) wallets are a relatively new way of storing your crypto assets rather than the old, conventional cryptocurrency wallets, which had their own upkeep of sorts.
The Tale of A Wallet
Developed initially under the Bitcoin Improvement Proposal (BIP 32), HD wallets reduce the hassle caused by previous cryptocurrency wallets which required a user to back-up his transactions each time he/she used their crypto funds.
HD wallets, firstly, generate new addresses with each transaction, and secondly, use the same internal address structure, originating from what is called a “master seed”, to generate and maintain addresses sequentially or hierarchically.
This has indeed brought a revolution for crypto wallet owners as their transactions are literally made anonymous, nearly impossible to exploit in any form and to the relief of frequent crypto users, requires the backing up of your seed just once.
The deterministic wallet needs only the entry of a 12 word phrase from it’s owner, which in turn is used as the master seed which forms new addresses deterministically for all future transactions.
Only the owner can keep track of these large number of internal interlinking of addresses which although was possible in older crypto wallets, was never as efficient as what takes place in HD wallets.
There have been three protocols on which mostly all deterministic wallets seem to operate – BIP-32, BIP-39, BIP-44.
Can They Pass The Judgement?
However, every time technological advancements are made, human nature has taught us to judge any development more by its cons than it’s pros.
Some wallet firms that allow users to set their 12 phrase master seed address themselves, run the risk jeopardizing their security measures.
The wallets that run on different aforementioned protocols are generally not synced to share or run alongwith other protocols, so sharing the master seed of two or more wallets remains strictly unadvisable.
The major question that remains is whether 12 word phrase-seeds are safe enough to maintain the high promised security structure on your crypto wallets?
The short answer is yes. This usually depends on the number of words any wallet providing firm intends to provide. The combinations runs into powers of 10 – ranging anywhere from 1025 to 1080 – which would require even supercomputers generations to decode.
In my view, deterministic wallets have begun to become somewhat of a trend among cryptocurrency wallets, which could propel them into the slots reserved for the most debatable topics of the crypto sphere.