Source: Kaleido Docs

A cryptocurrency wallet known as an HD wallet, or a Hierarchical Deterministic wallet, creates and maintains a hierarchy of keys from a single master key or seed phrase. HD wallets are intended to outperform conventional wallets in terms of security, privacy, and usability.

The main attributes and elements of HD wallets are as follows:

1. Master Seed: An HD wallet starts with a master seed that is produced at random and is usually a string of words called a seed phrase or mnemonic. The hierarchy of keys in the wallet is derived from this seed phrase, which acts as the root. The seed word must always be kept private since anybody who gains access to it can seize control of all the wallet's money.

2. Hierarchical Structure: Keys are arranged hierarchically in HD wallets. A hierarchical tree of keys is created from the master seed, with each branch denoting a distinct account or function. Without having to store each key separately, this hierarchical structure allows an infinite number of addresses and accounts to be created.

3. Key Derivation: HD wallets generate child keys from the master seed using a deterministic process known as BIP-32 (Bitcoin Improvement Proposal 32). By employing the master seed, this approach guarantees that every key in the hierarchy can be replicated and is deterministically generated from its parent key.

4. Extended Public Key (xPub): HD wallets can generate extended public keys (xPub), which allow for the creation of watch-only wallets. An xPub is derived from the master seed and can be shared publicly without compromising the security of the wallet. It enables users to generate new receiving addresses and monitor transactions without exposing their private keys.

5. Address Generation: HD wallets can generate an unlimited number of public addresses for receiving funds. Each address is derived from a unique path in the hierarchical tree of keys. This allows users to generate a new address for each transaction, enhancing privacy and security by reducing the likelihood of address reuse.

6. Backup and Recovery: Since HD wallets derive all keys from a single master seed, users only need to back up and secure their seed phrase to restore access to their entire wallet in case of loss or theft. This simplifies the backup and recovery process compared to traditional wallets, which may require backing up multiple private keys individually.

Because HD wallets store bitcoin keys using a hierarchical deterministic structure, they provide improved security, privacy, and convenience overall. Users of cryptocurrencies use them extensively, and several well-known wallet services and programs support them.