What is a Key Derivation Function (KDF)?

What is a Key Derivation Function (KDF)?

A key derivation function (KDF) is a mathematical process used in bitcoin and other cryptocurrencies to generate a unique key from a password or passphrase. The key is then used to encrypt or decrypt private data, such as a private key or seed phrase.  

In bitcoin, the key derivation function is known as the "BIP 32" standard. It uses a process called hierarchical deterministic (HD) key generation, which allows for the creation of a tree-like structure of derived keys from a single "seed" value. This seed value can be a random number or a user-provided passphrase.

The BIP 32 standard uses a specific algorithm, known as the "HMAC-SHA512" algorithm, to derive keys. This algorithm uses a combination of a cryptographic hash function and a keyed-hash message authentication code to generate the derived key. The algorithm takes the seed value as input, along with an additional value known as a "chain code," and outputs a 64-byte value.

One of the key advantages of using a key derivation function like BIP 32 is that it allows for the creation of multiple keys from a single seed value. This can be useful for managing multiple addresses or accounts in a secure manner, without the need to remember or store multiple passwords or private keys.

Another advantage is that it enables the user to create a "backup" of the seed value, and use it to recover all the derived keys. This is useful in case the user lose access to their private keys or forget their password.

In summary, a key derivation function is a mathematical process that allows for the generation of a unique key from a password or passphrase. In bitcoin, the key derivation function is known as BIP 32 and uses the HMAC-SHA512 algorithm to derive keys, which allows for the creation of multiple keys from a single seed value and enables the user to recover all the derived keys with the seed value.