What are BIP39, BIP44, and BIP32 in Crypto Wallets?

Bitcoin Improvement Protocols (BIPs) are proposals for changes or enhancements to the Bitcoin network. These protocols emerge from the collaborative efforts of developers and users who seek to refine and advance the Bitcoin ecosystem. In this article, we're focusing on three significant BIPs – BIP39, BIP44, and BIP32 – each pivotal in improving the functionality and security of Bitcoin wallets. 

What is BIP39?

BIP39 stands for Bitcoin Improvement Proposal 39. It's a method used in the crypto world to turn complicated cryptographic keys into something much more user-friendly: a list of words.

Imagine you have a password that looks like a long string of random numbers and letters. It's secure, but hard to remember. BIP39 solves this by converting this complex key into a sequence of words, known as a 'mnemonic phrase'. This phrase, usually 12 to 24 words long, acts like a password to access your cryptocurrencies. It's easier to remember and note down.

What is the BIP32 extended private key?

Before going into BIP44, it's important to first understand BIP32. It's another Bitcoin Improvement Proposal, but this one introduces the concept of 'Hierarchical Deterministic Wallets' (HD Wallets). In simple terms, BIP32 lets you create a whole family of cryptographic keys from a single starting point, known as a 'seed'. Additionally, BIP32 also provides a more secure way to manage private keys as it allows for additional layers of security such as multi-sig or multi-factor authentication.

The Power of the BIP32 Extended Private Key

A key part of BIP32 is the 'extended private key'. This isn't just a single key; it's like the master key that can create a whole set of keys under it. Think of it as the main branch of a tree from which many smaller branches (individual keys) can grow. This makes managing multiple addresses and transactions much simpler and more secure.

BIP44: Organising Your Crypto Wallets

Now, let's talk about BIP44. It's built on the foundation laid by BIP32 but adds a neat layer of organisation. BIP44 allows for the creation of multiple 'accounts' within a single wallet. It's like having different sections in your wallet for different types of transactions or cryptocurrencies. This standard makes it easier to keep track of your funds and manage them more effectively.

What Does BIP44 Standardise?

BIP44 sets rules for how these accounts and addresses are created and organised. It uses a structure that includes different levels - like main accounts, sub-accounts, and separate addresses for receiving and sending funds. This structure makes sure that everything stays orderly and easy to manage.

BIP39 and BIP44: Similarities and Differences

While BIP39 and BIP44 might seem related, they serve different purposes:

• BIP39 is about converting complex cryptographic information into a human-friendly format (mnemonic phrase).
• BIP44 uses the structure provided by BIP32 to organise the accounts and addresses in a wallet.

They work together in the sense that BIP39 creates a more user-friendly way to access the complex systems that BIP44 organises.

In Conclusion

BIP39 makes complex keys manageable, BIP32 introduces a system for creating multiple keys, and BIP44 organises these keys in a user-friendly manner. Together, these standards make using and securing crypto more secure and user-friendly, which will be a key benefit to mass adoption over the years to come.