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Bitcoin walletThe user interface to Bitcoins. The Bitcoin wallet, which can be software or a stand-alone hardware device, does not contain the coins. It stores the keys to access the Bitcoin blockchain. When people make payments with their wallets, the wallets use the keys to digitally sign the transactions proving ownership of their coins in the network, known as "unspent transaction outputs" (UXTOs).
HD Wallet Vs. Nondeterministic
In an HD Wallet (deterministic wallet), all private keys are derived from a "seed" that is combined with other data, and only the seed is required to restore all keys if the wallet is destroyed. Rather than a complicated password, the randomly generated seed is a series of from 12 to 24 alphabetic words that are easy to transcribe and copy. The HD Wallet (BIP-32 standard) generates all keys from the seed in a tree structure, and the different branches (keys) can be used to organize payments for different purposes such as departments in a company. In addition, a new public key can be created for each transaction that is safely published anywhere.
In contrast, a nondeterministic wallet generates a private key for each transaction using a random number. Known as "just a bunch of keys" (JBOK), this type of wallet is cumbersome because multiple keys must be backed up in order to keep track of all the user's coins in the network. The earlier nondeterministic wallet is not recommended. See Bitcoin and Bitcoin mining.
|The Ledger Nano S Digital Wallet|
|A hardware wallet stores the user's private key and signs the Bitcoin transactions offline, preventing the wallet from being hacked remotely. This HD Wallet from MintCell supports Bitcoin, Ethereum and other virtual currencies, and its unique USB plug attaches magnetically to keep the port from damage. (Image courtesy of MintCell.com.)|