Certified Bitcoin Professional Practice Exam

What is true about deterministic wallets?

1. They can only generate one private key

2. They require multiple master seeds to operate

3. They generate multiple unique private keys from a single master seed

4. They do not require a backup system

The correct answer is: They generate multiple unique private keys from a single master seed

Deterministic wallets are designed to enhance user experience and security in managing cryptocurrency assets. They generate multiple unique private keys from a single master seed, which is a fundamental characteristic of how these wallets operate. This means that users can derive a virtually unlimited number of private keys, making it easier to manage multiple addresses without the need to back up each individual key. Instead, as long as the user has the master seed, they can regenerate any of the derived keys at any time. This approach not only allows for enhanced privacy, as users can generate new addresses for each transaction, but it also simplifies the backup process. Users only need to back up the single master seed to secure all their derived keys. This feature of generating multiple keys from one seed significantly increases the flexibility and security of managing cryptocurrency.