So, the advantage of deterministic wallets is that you can recreate all private keys from the initial backup you created.
What's the advantage of having a hierarchy branching out from the master seed, instead of just one line of key pairs?
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1From bitcoinmagazine.com/articles/…: "The main use case for which this feature is advertised is in hierarchical organizations: the treasurer of a company might have control over the root private key of a BIP0032 wallet, and then hand off a “child” seed to each of the company’s departments who will then use that seed to operate their own wallet. The treasurer will have the master key to everything, but each department will only have the key to their own part of the funds." – Nate Eldredge Nov 3 '16 at 13:00
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@NateEldredge: That really should be answer :) – Murch♦ Nov 4 '16 at 0:03
Hierarchy allows interesting use-cases.
You could have a master company key m/0' and give out m/0'/0/0 to company-branch A and m/0'/0/1 to company branch B, etc.
You could then allow audits by handing out the extended public keys (xpub) of m/0'/0 to some trust organization (or just hand out m/0'/0/0 if you want someone to audit branch A only).
Private key at m/0' can reconstruct all funds from all branches.
On top of that, online-shop of branch A could use the xpub of m/0'/0/0/0 to received funds while not revealing the wallet structure of m/0'/0/0, etc.
Another interesting use-case would be to map domain-names or other string-based- identity-systems to the hierarchy. Example: Github.com could result in m/71'/105'/116'/104'/117'/98'/... (very unoptimized way for demonstration purpose).
answered Nov 3 '16 at 13:09
