Writing a summary on HD wallets, first part done, correct so far ?

A hierarchical deterministic wallet (or “HD Wallet”) is a wallet which generates all of its keys and addresses from a mnemonic sentence, better known as “seed”, or “seed words”.

● “Hierarchical” means that the keys and addresses can be organized into a tree

● “Deterministic” means that the keys and addresses are always generated in the same way, every time.

● A“Mnemonic sentence” represents a large randomly-generated number as a sequence of words, making it easier for humans to store.

To create an mnemonic sentence, you’ll need a specific entropy, which refers to the level of randomness and complexity.

You can think of entropy as being a very large number as a series of bits, e.g. 10011010010001...

The entropy needed to generate a mnemonic sentence needs to be a multiple of 32 bits, as this will allow the generated entropy to be split into even chunks, which can be converted to words, and should be between 128 and 256 bits, as this makes it impossible for two people to generate the same entropy.

Once the needed entropy is generated, a checksum is added, which makes the final sentence more user-friendly.

The checksum is created by hashing the generated entropy through SHA256, which creates a unique fingerprint for this entropy. One then takes 1 bit of the hash for every 32 bits of the generated entropy, and adds it to the entropy.

The generated entropy + checksum then gets split into groups of 11 bits, which get converted to decimal numbers, and use these numbers to select the corresponding words from the 2048 word list, thus creating the mnemonic sentence.

Once the mnemonic sentence has been created, it can be converted to the final seed, which is achieved by putting the mnemonic sentence through the “PBKDF2 function”, which hashes your mnemonic sentence (+ optional passphrase) multiple times, and produces a final 64 byte (512 bit) result.

● The “mnemonic sentence” allows the user to make a simple back-up of the wallet through use of the BIP39 2048 word list.

● The final “seed” is used to create the master private key, from which one can generate billions of “sub” private- and public keys.