Bitcoin, the decentralised cryptocurrency, is based on the principle that users control their own funds without the need for a third-party intermediary. To keep funds secure, cryptographic keys must be used to verify and sign transactions. One technique to make keys more secure is to use hardened child derivation, which is a type of hierarchical deterministic wallet.
Hardened child derivation is a method of generating a new private key from a parent key that makes it more difficult to determine the parent key from the child key. This is achieved by adding a “hardened” factor to the derivation path, which makes the child key based on a secret value that is added to the parent private key before it is hashed. This means that an attacker cannot derive the parent key by knowing the child key, improving the overall security of the wallet.
A key use case for hardened child derivation is in multi-signature wallets, which require the approval of multiple parties to transact funds. With hardened child derivation, each party can have their own unique derived key based on the shared parent key, making it difficult for any one party to gain access to the shared funds without the consent of the others.
Several popular wallets support hardened child derivation, including Ledger Nano S, Trezor and Electrum. These wallets all use BIP32 (Bitcoin Improvement Proposal 32) for hierarchical deterministic wallets, which includes support for hardened child derivation.
In addition, another business case for using hardened child derivation is to secure cold storage. With a hardware wallet using hardened child derivation, private keys can be generated and stored offline, providing maximum security against potential attackers. The private keys can only be accessed by the hardware wallet itself.
Overall, hardened child derivation is a useful tool in the cryptocurrency world to improve wallet security and make it harder for attackers to access funds without permission. Its use in multi-signature wallets and cold storage wallets highlights the importance of keeping funds safe in a decentralised financial system. As more businesses and individuals begin to use and invest in bitcoin and other cryptocurrencies, ensuring the security of funds will continue to be paramount.
FAQ
What is hardened derivation in the context of bitcoin and blockchain?
Hardened derivation is a method of generating child private and public keys from a master key in a deterministic manner, with the added security feature that the child public key cannot be used to derive the master private key. This is achieved by adding an extra layer of encryption to the process.
What are some business cases for using hardened child derivation in bitcoin?
One potential use case for hardened child derivation is in multi-signature wallets, where multiple parties need to sign off on transactions. Using hardened derivation can add an extra layer of security to these wallets by ensuring that even if one party’s private key is compromised, the rest of the keys in the wallet remain secure. Another potential use case is in cold storage solutions, where hardened derivation can be used to generate a new master public key for each transaction, making it more difficult for attackers to analyse the wallet’s activity and trace its funds.
Which wallets support hardened child derivation in bitcoin?
Many popular bitcoin wallets support hardened child derivation, including Electrum, GreenAddress and Armory. Some newer wallets, such as the Samourai Wallet, even use hardened derivation exclusively to improve their security. However, it’s important to note that not all wallets support this feature, so users should always do their research before choosing a wallet to store their funds in.