Blockchain tutorial 29: Hierarchical Deterministic wallet - BIP32 and BIP44 Video Lecture | Blockchain Tutorial: A Fundamental Guide - Cryptocurrency

in this video I will explain what a
hierarchical deterministic wallet is
what Bitcoin improvement proposal 32 and
Bitcoin improvement proposal 44 is a
link to this presentation can be found
in the description below
in blockchain tutorial 28 I have
explained Bitcoin improvement proposal
39 Bitcoin improvement proposal 39
describes how the mini monic words are
created these mnemonic words together
with a password optionally is used to
generate a 512 bit seed in this video
the 512 bits it is also called bib 39
seed this it is used as input to
generate private and public keys for
deterministic wallets there are two
types of deterministic wallets
sequential deterministic wallets and
hierarchical deterministic wallets
sequential deterministic wallets
generates private keys for example by
taking sha-256 off the seat plus n where
n is an index number that starts from 0
and increments as additional keys are
needed this is the simplified
explanation
nowadays most wallets are hierarchical
deterministic wallets this wallet type
is described at this location most
hierarchical deterministic world vendors
have implemented Bitcoin improvement
proposal 30 to 39 and 40 for these 3
Bitcoin improvement proposals are
becoming an industry standard if your
hierarchical deterministic wallet is bib
30 to 39 and 44 compliant then you can
transfer your private keys to another
wallet from another vendor which also
implemented these standards however
implementation of these standards can
differ for example offender implementing
Bitcoin improvement proposal 39 uses his
own word list making his wallet not
compatible with other vendors Bitcoin
improvement proposal 39 perhaps the
implementation of mnemonic words to
generate a 512 bit seed this it can be
used to create a hierarchical
deterministic wallet more information
about Bitcoin improvement 39 can be
found at this location or watch my
youtube video blockchain tutorial 28
Bitcoin improvement proposal 39 blue
malloc words
this YouTube video
Bitcoin improvement
so 32 describes how you can build a
general hierarchical deterministic
wallet these wallets can be shared
partially or entirely with different
systems each with or without the ability
to spend coins more information about
Bitcoin improvement proposal 32 can be
found at the following two locations if
you want to see how Bitcoin improvement
proposal 32 is implemented in the
Bitcoin jeaious library see this
location
I have created this web application
specifically for this YouTube video this
application is created for educational
purpose explaining how her article
deterministic wallets works do not use
this tool in production otherwise you
will lose all your crypto currencies
this application only creates valid keys
and addresses for
aetherium wallets implementing bib 39
bib 32 and bib 44 let's see how we can
generate a bib 39 seat we have two
methods this is method 1 and this is
method 2
in method 1 we select the entropy length
we can choose between these lengths
let's select the first one you can
select the word list and optionally we
can enter a password press this button
it automatically generates these
phenomenal words and this is the bib 39
seat which we need the seat is
automatically inserted in this field
instead of method one we can choose
method two to generate a bit 39 seat you
can enter your mathematic words or read
the number in this field for example
these are my Milla manic words you can
select the word list and optionally
enter a password press this button
as you can see over here this is the bib
39 seat the seat is also automatically
inserted in this field
bip 32 explains how mas keys and master
chain code are created from a bid 39
seat the chain code is used as entropy
in the child key derivation function in
the next slide I will explain what this
function is you start with a bit 39 seat
the H makes sha-512 hash function uses
the seat and generate this hash the left
part of the hash is the master private
key indicated with a lowercase letter M
and the right part of the hash is the
master chain code indicated with letter
C the master private key can be used to
generate the master public key indicated
with the capital letter M
in the previous life I've talked about
the master private key and the master
public key and master chain code in this
light it is now called parent private
key and parent public key and parent
chain code this age make sure five on
the twelfth hash function is called the
child key derivation function this
function requires three inputs an index
number a chain code and one of these two
keys the private key or the public key
this index number can be divided into
two separate ranges this range from 0 to
2 to the power of 31 minus 1 or 2 to the
power of 31 till 2 to the power of 32
minus 1 if the index number is in this
range it is called normal keys and if
the index number lies in this range it
is called hardened keys if you want to
create hardened keys we use the parent
private key indicated by this letter if
you want to create normal keys we use
the parent public key indicated with the
letter n over here if you want to create
hardened keys for example 2 ^ 31 + 0
that's the index number we insert the
chain code we insert the parent private
key into the hash function the hash
function creates a hash value the left
part is called hash left and the right
part is called hash right the hash right
part is also called the child chain code
because we are creating hard keys we are
looking at this part indicated with the
letter H this hash left is the same as -
hash left
the parent private key this part and
together they create the child private
key and if you have the child private
key we can create the child public key
if we now increase the index number with
one for instance to ^ 31 plus 1 we
insert it into the hash function we use
the same parent private key we use the
same parent chain code it will create a
new hash value with a new child chain
code hash left is inserted over here it
take the parent private key insert it
over here this will form the child
private key and this child private key
can create the child public key if we
keep increasing this index number we
create new child private key and child
public is what we have now done is a
child key derivation
we started with the bib 32 seat and
created a parent private key parent
public key and the parent chain code
this is called the master note if we
keep the parent private key the same and
the parent chain code but we increase
the index number we generate child
private keys and child public keys
indicated by these lines
in fact what we have created is a wallet
with different addresses
if I want to create children from this
index number I have to do the following
I want to create children based on index
value 1 I'm calculating hard on keys I'm
adding 1 plus 2 to the power of 31
that's my new index number I'm inserting
the parent chain code and the parent
private key the child key derivation
function calculates a new hash value and
it will calculate a new child chain code
this child chain code will replace the
parent chain code the parent private key
will remain the same and we can out
create new child private keys and child
public keys by starting again with index
number 0 so 0 plus 2 to the power of 31
using the same parent private key but
with the new chain code
using different index numbers will
create different on linkable child keys
from the same parent keys repeating the
procedure for the child keys using the
child chain code will create unlink
about grandchild keys by changing the
chain code a new note aka Walt is
created
in the previous slide I've explained how
to create heart of keys and hardened
keys are the child private key and the
child public key if you want to create
normal kiss you use index numbers within
this range and you use the parent public
key normal Keys consists only of child
public keys it doesn't create child
private keys for example if I want to
create a normal key I use index number
zero I use the same parent chain code
and I'm now using the parent public key
the hash function creates a new hash
value this has left value is the same as
this hash left this parent public key is
the same as this parent public key these
two failures together is the child
public key if we keep increasing the
index number we keep creating new child
public keys
if you create normal keys we create a
wallet with only public keys
and we also can create public keys based
on this index number
if you want to create child public is
based on index number one we use the
same parent chain code and we are using
the parent public key the hash function
will create a new hash value and it will
create a child chain code this child
chain code will replace this parent
chain code and now we can start with
index number 0 using the parent public
key the hash function will create a new
hash value and this hash value will be
used to create a new child public key
this function is also known as the child
key derivation function it derives child
keys
from parent keys
these keys are also called drive child
keys
the extended private key is indicated by
these letters and consists of the parent
private key plus the parent chain code
the extended public key is indicated by
these letters and consists of the parent
public key plus the parent chain code
extended private keys can create a
complete branch with child private keys
and child public keys as indicated here
and extended public keys create only a
branch of child public keys it cannot
create hardened keys
extended public keys can only generate
public keys this is perfect if you want
a wallet which can only watch your
account balances or receive coins but
you cannot sign any transactions because
there are no private keys available a
wallet created with an extended private
key can generate public keys and private
keys
Bitcoin improvement pulse of 44 defines
a specific logical hierarchy for
deterministic wallets based on an
algorithm described in Bitcoin
improvement proposal 32 more information
about Bitcoin improvement proposal 44
can be found at this location
Bitcoin improvement pulse of 44 uses the
following derivation path
the letter M denotes the mass note and
all hierarchical levels are separated
with slashes M is level 0 purpose is
level one coin type is level 2 etc the
purpose game is described in bitcoin
improvement proposal 43 because we are
using Bitcoin improvement proposal 44
scheme we should use 44 Prime the
apostrophe for example in purpose prime
indicates harder derivation this episode
of the apostrophes also used here and
here the default registered coin types
for uses in level 2 of Bitcoin
improvement proposal 44 can be found at
this location
here's a list of registered koentact for
Bitcoin improved on proposal 44
and these are the coins
Bitcoin has value 0 and etherium uses
value 60
the account level can be seen as bank
account types for example payment
account savings account etc change level
is also known external or internal level
where external zero is used as addresses
that are meant to be visible outside of
the relat for example for receiving
payments and internal value one is used
for addresses which are not meant to be
visible outside of the wallet for
example for signing transactions address
index is a sequence of addresses
starting at 0 the keys in hierarchical
deterministic wallets are identified
using a path naming convention for
example m / 44 prime / 60 prime / 0
prime / 1 / 4 this is the fifth address
a change level 1
this is an example of a derivation path
these values are using apostrophe which
means this is harder derivation these
values have no apostrophe which means
normal derivation
what does this derivation path mean the
purpose is 44 which means this the
efficient path complies to Bitcoin
improvement proposal 44 the coin type is
0 which means Bitcoin that's the 0 the
count is 0 the change is 0 and the
address index is 0 if you look over here
here's the start of the wallet this
wallet is a Bitcoin wallet which
complies to a Bitcoin improvement
proposal 44 this is account 0 this is
account 1 etc below account level 0 we
start with change level 0 and below
change level 0 we can create addresses
address 0 1 2 3 4 etc account 0 can
represent our payment accounts and
account one can represent our savings
accounts
this is changed level zero and this is
chase level one why would we want to use
change level zero and change level one
suppose you have ten bitcoins and you
want to transfer for bitcoins to another
address and six bitcoins you want to
receive exchange so these addresses for
example can be used as our change
addresses
example the purpose is 44 but now we are
using coin type 60 which means aetherium
this wallet is an aetherium wallet which
complies to Bitcoin improvement purpose
of 44 as with the Bitcoin wallet we can
create multiple accounts
here's account 0 here's account 1 and we
can create more accounts just as Bitcoin
we can use this account as our payment
account and this account as our savings
account
but in the etherium wallet we usually
only use one change level as you can see
over here below every account level
there will be only one change level
change level zero this particular
situation will probably not occur below
change level zero you can find all the
addresses
shop wants to receive payments in only
in aetherium for each payment received a
different IAM address must be used the
webshop should use a wallet containing
only public keys the webshop wallet uses
an extended public key with their facial
path MH les 44 primes less 60 primes
less 0 prime / 0 this wallets creates
the following addresses address 0 1 2 3
etc the accounting department separated
from the rep shop uses another wallet
containing the same public keys and
accompanied private keys the counting
Department can transfer payments made on
these public addresses and transfer it
to a separate accounting address this is
possible because they have access to the
private keys the accounting department
wallet uses an extended private key with
the same derivation path M / 44 prime /
60 Prime / 0 prime / 0
and demonstration suppose I am the world
administrator I need to create two
wallets webshop wallet and an account
Department wallet to create a webshop
wallet I need to create the extended
public key and change level 0 with this
derivation path to create account
Department wallet I need to create the
extended private key and change level 0
with this derivation path as you can see
that their fashion paths are the same
this wallet will only contain public
keys this wall will contain the same
public keys but also the private keys
first create the bip 39 seat
choosing the 128-bit entropy length I'm
selecting the English word list and I'm
not using a password and I'm pressing
this button
so this is my blame on ik words I will
save it
this is the bib 39 seat the seat is
automatically inserted over here the
purpose is 44 which is correct the coin
type is 60 that is aetherium here are
all the other coin types
this derivation path reflects the value
what you select here and insert here
if you select ether classic with a value
of 61 you can see that their fashions
path changes if you change the account
value to 100 account value changes over
here if you change the change level to 1
you can see this value changes to one
you can enter a start address index
value and an end address index value
which means it will generate addresses
from 0 till 10 please no I only
displayed this coin typed for
educational purpose but this web
application only works for either
I'm now pressing this button
and here are all the information I need
I'm only interested in the extended
public key and extended private key with
this derivation path
that's this derivation part this
derivation path matches this derivation
path I'm copying these two lines
this is the extended public key for the
webshop wallet and this is the extended
private key for the account department
wallet for later comparison let's copy
these addresses
only copying a few of them
so I've copied these addresses over here
this is address 0 address 1 address 2
and address 3 all right let's refresh
this page
so this page is completely reset
suppose I now want to create my webshop
wallet
the only thing I need is the extended
public key
that's des key
copy it let's paste this extended public
key in this field I'm only interested in
address zero till three I'm selecting
this checkbox because these keys comes
from an in theorem wallet now pressing
this button as you can see the extended
public key generates these public keys
let's compare these generated addresses
and see if they are the same
if we look at address zero that's this
one if we look at the public key three a
five is same as this one three a five
e46 a e46 a that's correct so this is
address one
the address is 8 5 f8 5f and the public
key is 9 f p9 FB that's also correct
this proves that the extended public key
generates the correct public addresses
let's refresh this page
let's create account Department wallet I
only need the extended private key let's
copy this key
bass this ski
do the same as before and press this
button let's check if the private and
public keys are the same
the rest 0 this is address zero the
dress is e46 c-46 private key is two
three eight private key is 2 3 8 and the
public key is three a five public key is
3 a 5 that's correct
address 1 address 1 address is 8 5 f8 5f
private key is a 2 2 a 2 2 and the
public key is 9 f b9 FB
this proves that extended private key
creates the same private keys at public
keys
the change level is not hardened as you
can see over here if a hacker gets his
hands on any child private key for
example this key
enter the account extended public key
the hacker can recompute the account
extended private key and thus have
access to every private key and public
key descending from the account level
from this level if an hackers gets his
hands on the extended public key and one
of these private keys then an hacker can
recompute this extended private key
which means the hacker has access to all
these addresses
for more information about this risk go
to this link extended public keys only
generates public keys but you must be
aware of the above-mentioned risk
thanks for watching I hope you enjoyed
the video please hit the like button and
don't forget to subscribe if you have
questions leave your comments below I'll
do my best to answer them