how electrum wallet encrypted

Electrum's HD wallets employ BIP32 derivation, key stretching, and encrypted key storage to securely generate and manage multiple bitcoin addresses using a deterministic seed.

Oct 30, 2024 at 01:33 pm

How Electrum Wallet Encrypted

1. Hierarchical Deterministic (HD) Wallets
Electrum utilizes HD wallets, which generate a deterministic seed (a series of randomly generated words) that controls the creation of multiple bitcoin addresses.

2. BIP32 Derivation
The seed is used as the root of a hierarchical tree structure following the BIP32 protocol. Each node in the tree represents a bitcoin address.

3. Master Public Key and Private Key
The seed is divided into two keys: a master public key and a master private key. The public key is used to derive all public addresses, while the private key is used to derive all private keys.

4. Key Stretching
To enhance security, the master private key is stretched through a key derivation function (KDF) like bcrypt. This slows down brute-force attacks.

5. Key Storage
The stretched master private key and wallet data are stored in an encrypted file on the user's computer. The file is protected by a user-defined password.

6. Address Derivation
When a new bitcoin address is needed, the HD wallet algorithm derives a child public key and child private key. The public key is used to generate the address, which is presented to the user.

7. Encrypted Transactions
When a bitcoin transaction is created, the wallet encrypts it using an ephemeral (temporary) key generated from the master private key. The encrypted transaction is then broadcast to the bitcoin network.

8. Transaction Signing
When the bitcoin network returns the decrypted transaction, it is signed using the master private key. This proves ownership of the funds being sent.

9. Security Features
Electrum offers additional security features, such as:

• PIN code protection for the wallet file
• Two-factor authentication
• Encrypted seed storage on a separate physical device

Conclusion
Electrum wallet's robust encryption methods ensure the safety of users' funds and privacy. The combination of HD wallets, BIP32 derivation, and key stretching techniques protects the master private key and all associated bitcoin addresses.