bitcoinbook/selected BIPs/bip-0044.asciidoc

------------------------------------------------------------
  BIP:     BIP-0044
  Title:   Multi-Account Hierarchy for Deterministic Wallets
  Authors: Marek Palatinus <slush@satoshilabs.com>
           Pavol Rusnak <stick@satoshilabs.com>
  Status:  Draft
  Type:    Standards Track
  Created: 2014-04-24
------------------------------------------------------------

[[abstract]]
Abstract
~~~~~~~~

This BIP defines a logical hierarchy for deterministic wallets based on
an algorithm described in BIP-0032 (BIP32 from now on) and purpose
scheme described in BIP-0043 (BIP43 from now on).

This BIP is a particular application of BIP43.

[[motivation]]
Motivation
~~~~~~~~~~

The hierarchy proposed in this paper is quite comprehensive. It allows
the handling of multiple coins, multiple accounts, external and internal
chains per account and millions of addresses per chain.

[[path-levels]]
Path levels
~~~~~~~~~~~

We define the following 5 levels in BIP32 path:

-------------------------------------------------------------
m / purpose' / coin_type' / account' / change / address_index
-------------------------------------------------------------

Apostrophe in the path indicates that BIP32 hardened derivation is used.

Each level has a special meaning, described in the chapters below.

[[purpose]]
Purpose
^^^^^^^

Purpose is a constant set to 44' (or 0x8000002C) following the BIP43
recommendation. It indicates that the subtree of this node is used
according to this specification.

Hardened derivation is used at this level.

[[coin-type]]
Coin type
^^^^^^^^^

One master node (seed) can be used for unlimited number of independent
cryptocoins such as Bitcoin, Litecoin or Namecoin. However, sharing the
same space for various cryptocoins has some disadvantages.

This level creates a separate subtree for every cryptocoin, avoiding
reusing addresses across cryptocoins and improving privacy issues.

Coin type is a constant, set for each cryptocoin. Cryptocoin developers
may ask for registering unused number for their project.

The list of already allocated coin types is in the chapter "Registered
coin types" below.

Hardened derivation is used at this level.

[[account]]
Account
^^^^^^^

This level splits the key space into independent user identities, so the
wallet never mixes the coins across different accounts.

Users can use these accounts to organize the funds in the same fashion
as bank accounts; for donation purposes (where all addresses are
considered public), for saving purposes, for common expenses etc.

Accounts are numbered from index 0 in sequentially increasing manner.
This number is used as child index in BIP32 derivation.

Hardened derivation is used at this level.

Software should prevent a creation of an account if a previous account
does not have a transaction history (meaning none of its addresses have
been used before).

Software needs to discover all used accounts after importing the seed
from an external source. Such an algorithm is described in "Account
discovery" chapter.

[[change]]
Change
^^^^^^

Constant 0 is used for external chain and constant 1 for internal chain
(also known as change addresses). External chain is used for addresses
that are meant to be visible outside of the wallet (e.g. for receiving
payments). Internal chain is used for addresses which are not meant to
be visible outside of the wallet and is used for return transaction
change.

Public derivation is used at this level.

[[index]]
Index
^^^^^

Addresses are numbered from index 0 in sequentially increasing manner.
This number is used as child index in BIP32 derivation.

Public derivation is used at this level.

[[account-discovery]]
Account discovery
~~~~~~~~~~~~~~~~~

When the master seed is imported from an external source the software
should start to discover the accounts in the following manner:

1.  derive the first account's node (index = 0)
2.  derive the external chain node of this account
3.  scan addresses of the external chain; respect the gap limit
described below
4.  if no transactions are found on the external chain, stop discovery
5.  if there are some transactions, increase the account index and go to
step 1

This algorithm is successful because software should disallow creation
of new accounts if previous one has no transaction history, as described
in chapter "Account" above.

Please note that the algorithm works with the transaction history, not
account balances, so you can have an account with 0 total coins and the
algorithm will still continue with discovery.

[[address-gap-limit]]
Address gap limit
^^^^^^^^^^^^^^^^^

Address gap limit is currently set to 20. If the software hits 20 unused
addresses in a row, it expects there are no used addresses beyond this
point and stops searching the address chain.

Wallet software should warn when the user is trying to exceed the gap
limit on an external chain by generating a new address.

[[registered-coin-types]]
Registered coin types
~~~~~~~~~~~~~~~~~~~~~

These are the registered coin types for usage in level 2 of BIP44
described in chapter "Coin type" above.

All these constants are used as hardened derivation.

[cols=",,",options="header",]
|==============================
|index |hexa |coin
|0 |0x80000000 |Bitcoin
|1 |0x80000001 |Bitcoin Testnet
|==============================

[[examples]]
Examples
~~~~~~~~

[cols=",,,,",options="header",]
|====================================================================
|coin |account |chain |address |path
|Bitcoin |first |external |first |m / 44' / 0' / 0' / 0 / 0
|Bitcoin |first |external |second |m / 44' / 0' / 0' / 0 / 1
|Bitcoin |first |change |first |m / 44' / 0' / 0' / 1 / 0
|Bitcoin |first |change |second |m / 44' / 0' / 0' / 1 / 1
|Bitcoin |second |external |first |m / 44' / 0' / 1' / 0 / 0
|Bitcoin |second |external |second |m / 44' / 0' / 1' / 0 / 1
|Bitcoin |second |change |first |m / 44' / 0' / 1' / 1 / 0
|Bitcoin |second |change |second |m / 44' / 0' / 1' / 1 / 1
|Bitcoin Testnet |first |external |first |m / 44' / 1' / 0' / 0 / 0
|Bitcoin Testnet |first |external |second |m / 44' / 1' / 0' / 0 / 1
|Bitcoin Testnet |first |change |first |m / 44' / 1' / 0' / 1 / 0
|Bitcoin Testnet |first |change |second |m / 44' / 1' / 0' / 1 / 1
|Bitcoin Testnet |second |external |first |m / 44' / 1' / 1' / 0 / 0
|Bitcoin Testnet |second |external |second |m / 44' / 1' / 1' / 0 / 1
|Bitcoin Testnet |second |change |first |m / 44' / 1' / 1' / 1 / 0
|Bitcoin Testnet |second |change |second |m / 44' / 1' / 1' / 1 / 1
|====================================================================

[[compatible-wallets]]
Compatible wallets
~~~~~~~~~~~~~~~~~~

* https://mytrezor.com[myTREZOR web wallet]
(https://github.com/trezor/webwallet[source])

[[reference]]
Reference
~~~~~~~~~

* link:bip-0032.mediawiki[BIP32 - Hierarchical Deterministic Wallets]
* link:bip-0043.mediawiki[BIP43 - Purpose Field for Deterministic
Wallets]