Your First Wallet

Overview

In this module, you'll learn how to create BSV wallets using the TypeScript SDK. We'll cover two distinct approaches: backend wallet management (server-side key management) and frontend wallet integration (browser-based using WalletClient).

Understanding these two paradigms is crucial for building secure and user-friendly BSV applications.

Learning Objectives

By the end of this module, you will be able to:

Understand the difference between backend and frontend wallet paradigms
Generate and manage private keys securely on the backend
Implement HD wallets using BRC-42 key derivation
Follow security best practices for key storage
Understand when to use WalletClient for frontend applications
Create production-ready wallet implementations

What is a Wallet?

A BSV wallet is software that:

Manages private keys securely
Generates addresses for receiving payments
Signs transactions to send payments
Tracks UTXOs (Unspent Transaction Outputs)
Maintains transaction history

Important: A wallet doesn't "store" BSV. It stores the private keys that control UTXOs on the blockchain.

Backend vs Frontend Wallet Paradigm

Backend Wallet (Custodial/Server-Side)

Use Case: When your application controls funds on behalf of users

Characteristics:

Private keys stored server-side
Application signs transactions
Full control over key management
Requires robust security infrastructure
Examples: Exchanges, payment processors, custodial services

Pros:

Simplified user experience
No wallet setup required for users
Can implement complex business logic

Cons:

You're responsible for security
Single point of failure
Regulatory implications (you custody funds)

Frontend Wallet (Non-Custodial)

Use Case: When users control their own funds

Characteristics:

Private keys stored in user's browser/device
User signs transactions via wallet extension
No server-side key storage
Uses WalletClient SDK integration
Examples: DApps, web3 applications

Pros:

Users control their own keys
No custody liability
Better privacy

Cons:

Requires user to have wallet setup
More complex UX
Limited control over transaction signing

This Module: We'll focus on backend wallet implementation. For frontend wallet integration using WalletClient, see the Wallet Client Integration module.

Backend Wallet Implementation

Understanding Wallet Types

1. Simple Wallet

Single private key controlling one or more addresses.

Pros: Simple to understand and implement Cons: Must backup each key separately, not scalable

2. HD Wallet (Hierarchical Deterministic)

One master seed generates unlimited keys deterministically using BRC-42.

Pros:

One backup for all keys
Deterministic key derivation
Can generate keys without exposing master key
Supports key hierarchy and organization

Cons: Slightly more complex implementation

Recommendation: Always use HD wallets for production applications.

Creating a Simple Wallet

Step 1: Generate a Private Key

import { PrivateKey } from '@bsv/sdk'

// Generate a cryptographically secure random private key
const privateKey = PrivateKey.fromRandom()

// Export in different formats
console.log('=== Private Key Generation ===')
console.log('Private Key (WIF):', privateKey.toWif())
console.log('Private Key (Hex):', privateKey.toHex())
console.log('\n⚠️ Never share your private key!')
console.log('⚠️ This example is for learning purposes only')

// Save this code to a file and run it:
// npx ts-node generate-key.ts

Output Example:

=== Private Key Generation ===
Private Key (WIF): L4rK1yDtCWekvXuE6oXD9jCYfFNV2cWRpVuPLBcCU2z8TrisoyY1
Private Key (Hex): e3b0c44298fc1c149afbf4c8996fb92427ae41e4649b934ca495991b7852b855

⚠️ Never share your private key!
⚠️ This example is for learning purposes only

Security Note: Never log private keys in production. This is for educational purposes only.

To run this example:

# Create the file
echo 'import { PrivateKey } from "@bsv/sdk"
const privateKey = PrivateKey.fromRandom()
console.log("Private Key (WIF):", privateKey.toWif())
console.log("Address:", privateKey.toPublicKey().toAddress())' > generate-key.ts

# Run it
npx ts-node generate-key.ts

Step 2: Derive Public Key and Address

import { PrivateKey } from '@bsv/sdk'

// Generate or load a private key
const privateKey = PrivateKey.fromRandom()

// Derive public key from private key (using elliptic curve cryptography)
const publicKey = privateKey.toPublicKey()

// Generate Bitcoin address from public key
const address = publicKey.toAddress()

console.log('=== Key Derivation ===')
console.log('Private Key (WIF):', privateKey.toWif())
console.log('Public Key (Hex):', publicKey.toString())
console.log('Address:', address)
console.log('\n✅ You can share the address to receive payments!')
console.log('💡 Fund this address with testnet BSV from BSV Desktop')
console.log('   Download: https://desktop.bsvb.tech/')

// Run this example: npx ts-node derive-address.ts

Key Concepts:

Private Key: Secret number (256 bits). Must be kept secure.
Public Key: Derived from private key via ECDSA. Can be shared publicly.
Address: Hash of public key. Used for receiving payments.

To run this example:

# Create and run the complete example
cat > derive-address.ts << 'EOF'
import { PrivateKey } from '@bsv/sdk'

const privateKey = PrivateKey.fromRandom()
const publicKey = privateKey.toPublicKey()
const address = publicKey.toAddress()

console.log('Private Key (WIF):', privateKey.toWif())
console.log('Public Key:', publicKey.toString())
console.log('Address:', address)
console.log('\nFund at: https://desktop.bsvb.tech/')
EOF

npx ts-node derive-address.ts

Step 3: Create a Basic Wallet Class

import { PrivateKey } from '@bsv/sdk'

class SimpleWallet {
  private privateKey: PrivateKey
  public readonly address: string
  public readonly publicKey: string

  constructor(privateKey?: PrivateKey) {
    this.privateKey = privateKey || PrivateKey.fromRandom()

    const pubKey = this.privateKey.toPublicKey()
    this.publicKey = pubKey.toString()
    this.address = pubKey.toAddress()
  }

  // Get public wallet information
  getInfo() {
    return {
      address: this.address,
      publicKey: this.publicKey
    }
  }

  // Get private key for transaction signing
  // INTERNAL USE ONLY - never expose via API
  getPrivateKey(): PrivateKey {
    return this.privateKey
  }

  // Export private key for backup (encrypted storage only)
  exportPrivateKey(): string {
    return this.privateKey.toWif()
  }

  // Restore wallet from WIF-encoded private key
  static fromWIF(wif: string): SimpleWallet {
    const privateKey = PrivateKey.fromWif(wif)
    return new SimpleWallet(privateKey)
  }

  // Restore wallet from hex-encoded private key
  static fromHex(hex: string): SimpleWallet {
    const privateKey = PrivateKey.fromHex(hex)
    return new SimpleWallet(privateKey)
  }
}

// Usage Example
const wallet = new SimpleWallet()
console.log('=== Simple Wallet Created ===')
console.log('Wallet Address:', wallet.address)
console.log('Public Key:', wallet.publicKey)

// Backup (encrypt this in production!)
const backupWIF = wallet.exportPrivateKey()
console.log('\n=== Backup (Keep Secure!) ===')
console.log('Private Key (WIF):', backupWIF)

// Restore from backup
const restoredWallet = SimpleWallet.fromWIF(backupWIF)
console.log('\n=== Wallet Restored ===')
console.log('Restored Address:', restoredWallet.address)
console.log('✅ Addresses match:', wallet.address === restoredWallet.address)

console.log('\n💡 Fund this address with testnet BSV from BSV Desktop')
console.log('   Download: https://desktop.bsvb.tech/')

// Run this example: npx ts-node simple-wallet.ts

Creating an HD Wallet with BRC-42

HD wallets provide a scalable, hierarchical key management system. The SDK uses BRC-42 for deterministic key derivation.

Understanding BRC-42 Key Derivation

BRC-42 defines how to derive child keys from a master key using:

Protocol ID: Identifies the application/protocol
Key ID: Identifies the specific key purpose
Counterparty: Optional, for key exchange protocols

This creates a hierarchy: Master Key → Protocol → Key ID → Derived Key

Step 1: Generate Mnemonic Seed Phrase

import { Mnemonic } from '@bsv/sdk'

// Generate 12-word mnemonic (128 bits of entropy)
const mnemonic = Mnemonic.fromRandom()
const mnemonicPhrase = mnemonic.toString()

console.log('Mnemonic:', mnemonicPhrase)
// Example: abandon ability able about above absent absorb abstract absurd abuse access accident

// Convert to seed (used for key derivation)
const seed = mnemonic.toSeed()
console.log('Seed (Hex):', Buffer.from(seed).toString('hex'))

Mnemonic Standards:

12 words = 128 bits of entropy (standard, secure)
15 words = 160 bits of entropy
18 words = 192 bits of entropy
21 words = 224 bits of entropy
24 words = 256 bits of entropy (maximum security)

Security: The mnemonic phrase is the root of all keys. Protect it like the master password to all funds.

Step 2: Derive Master Private Key

import { Mnemonic, PrivateKey } from '@bsv/sdk'

// Generate or restore from mnemonic
const mnemonic = Mnemonic.fromRandom()

// Derive master private key from mnemonic seed
const seed = mnemonic.toSeed()
// Use first 32 bytes of seed as private key
const seedHex = Buffer.from(seed).toString('hex').substring(0, 64)
const masterKey = PrivateKey.fromHex(seedHex)

console.log('Master Private Key:', masterKey.toWif())

Step 3: Implement HD Wallet with BRC-42

import { Mnemonic, PrivateKey, PublicKey } from '@bsv/sdk'

class HDWallet {
  private masterKey: PrivateKey
  private mnemonic: Mnemonic
  private protocolID: string
  private counterparty: PublicKey  // Use 'anyone' for self-derivation
  private derivedKeys: Map<string, PrivateKey> = new Map()

  constructor(mnemonic?: Mnemonic, protocolID: string = 'wallet') {
    // Generate new mnemonic or use provided one
    this.mnemonic = mnemonic || Mnemonic.fromRandom()

    // Derive master key from mnemonic
    const seed = this.mnemonic.toSeed()
    // Use first 32 bytes of seed as private key
    const seedHex = Buffer.from(seed).toString('hex').substring(0, 64)
    this.masterKey = PrivateKey.fromHex(seedHex)

    // Set protocol ID for BRC-42 derivation
    this.protocolID = protocolID

    // Use 'anyone' (PrivateKey(1).toPublicKey()) as counterparty for self-derivation
    this.counterparty = new PrivateKey(1).toPublicKey()
  }

  /**
   * Derive a child private key using BRC-42
   *
   * @param keyID - Unique identifier for this key (e.g., 'address-0', 'signing-key')
   * @param counterparty - Optional counterparty for key exchange protocols
   * @returns Derived private key
   */
  deriveKey(keyID: string, counterparty?: string): PrivateKey {
    const cacheKey = counterparty ? `${keyID}-${counterparty}` : keyID

    // Return cached key if already derived
    if (this.derivedKeys.has(cacheKey)) {
      return this.derivedKeys.get(cacheKey)!
    }

    // Create invoice number in BRC-42 format: "<securityLevel>-<protocolID>-<keyID>"
    // Security level 0 = can be revealed, level 1 = with counterparty consent, level 2 = cannot be revealed
    const invoiceNumber = `0-${this.protocolID}-${keyID}`

    // Derive child key using BRC-42
    // For simple wallet: counterparty is 'anyone' (PrivateKey(1).toPublicKey())
    const derivedKey = this.masterKey.deriveChild(this.counterparty, invoiceNumber)

    // Cache derived key
    this.derivedKeys.set(cacheKey, derivedKey)

    return derivedKey
  }

  /**
   * Generate address at specific index
   * Uses pattern: protocol='wallet', keyID='address-{index}'
   */
  generateAddress(index: number): string {
    const key = this.deriveKey(`address-${index}`)
    return key.toPublicKey().toAddress()
  }

  /**
   * Generate multiple addresses
   */
  generateAddresses(count: number, startIndex: number = 0): string[] {
    const addresses: string[] = []
    for (let i = startIndex; i < startIndex + count; i++) {
      addresses.push(this.generateAddress(i))
    }
    return addresses
  }

  /**
   * Get private key for specific address index
   * INTERNAL USE ONLY - for transaction signing
   */
  getPrivateKeyForAddress(index: number): PrivateKey {
    return this.deriveKey(`address-${index}`)
  }

  /**
   * Derive specialized keys for different purposes
   */
  deriveSigningKey(purpose: string): PrivateKey {
    return this.deriveKey(`signing-${purpose}`)
  }

  deriveEncryptionKey(purpose: string): PrivateKey {
    return this.deriveKey(`encryption-${purpose}`)
  }

  /**
   * Export mnemonic for backup
   * WARNING: This should only be called in secure contexts
   * In production: encrypt before storing
   */
  exportMnemonic(): string {
    return this.mnemonic.toString()
  }

  /**
   * Restore HD wallet from mnemonic phrase
   */
  static fromMnemonic(mnemonicPhrase: string, protocolID: string = 'simple wallet'): HDWallet {
    const mnemonic = Mnemonic.fromString(mnemonicPhrase)
    return new HDWallet(mnemonic, protocolID)
  }

  /**
   * Get wallet metadata (safe to expose)
   */
  getInfo() {
    return {
      protocolID: 'wallet',
      firstAddress: this.generateAddress(0),
      // Never expose mnemonic or master key
    }
  }
}

// Example Usage
const wallet = new HDWallet()

console.log('=== HD Wallet Created ===')
console.log('Protocol ID:', wallet.getInfo().protocolID)
console.log('First Address:', wallet.getInfo().firstAddress)

// Generate receiving addresses
console.log('\n=== Generated Addresses ===')
const addresses = wallet.generateAddresses(5)
addresses.forEach((addr, idx) => {
  console.log(`Address ${idx}:`, addr)
})

// Derive specialized keys
console.log('\n=== Specialized Keys ===')
const signingKey = wallet.deriveSigningKey('document-signing')
console.log('Signing Key Address:', signingKey.toPublicKey().toAddress())

const encryptionKey = wallet.deriveEncryptionKey('message-encryption')
console.log('Encryption Key Address:', encryptionKey.toPublicKey().toAddress())

// Backup wallet (encrypt this!)
const backupPhrase = wallet.exportMnemonic()
console.log('\n=== Backup (KEEP SECURE!) ===')
console.log('Mnemonic:', backupPhrase)
console.log('⚠️ Write this down and store it safely!')

// Restore wallet from backup
console.log('\n=== Testing Restore ===')
const restored = HDWallet.fromMnemonic(backupPhrase)
console.log('Restored First Address:', restored.generateAddress(0))
console.log('✅ Addresses match:', wallet.generateAddress(0) === restored.generateAddress(0))

console.log('\n💡 Fund any of these addresses with testnet BSV from BSV Desktop')
console.log('   Download: https://desktop.bsvb.tech/')
console.log('\n📖 Complete onboarding guide:')
console.log('   https://hub.bsvblockchain.org/demos-and-onboardings/onboardings/onboarding-catalog/metanet-desktop-mainnet')

// Run this example: npx ts-node hd-wallet-example.ts

Advanced: Using KeyDeriver for Complex Hierarchies

For more complex key derivation needs, the SDK provides the KeyDeriver class:

import { PrivateKey, KeyDeriver } from '@bsv/sdk'

class AdvancedHDWallet {
  private masterKey: PrivateKey
  private deriver: KeyDeriver

  constructor(masterKey: PrivateKey) {
    this.masterKey = masterKey
    this.deriver = new KeyDeriver(masterKey)
  }

  /**
   * Derive keys with custom protocol and key IDs
   */
  deriveCustomKey(protocolID: string, keyID: string): PrivateKey {
    return this.deriver.deriveChild(
      PrivateKey.fromString(protocolID),
      PrivateKey.fromString(keyID)
    )
  }

  /**
   * Derive public key without exposing private key
   * Useful for watch-only wallets or key distribution
   */
  derivePublicKey(protocolID: string, keyID: string): string {
    const privateKey = this.deriveCustomKey(protocolID, keyID)
    return privateKey.toPublicKey().toHex()
  }

  /**
   * Create child deriver for delegated key management
   * This allows creating sub-wallets without exposing master key
   */
  createChildDeriver(protocolID: string): KeyDeriver {
    const childKey = this.masterKey.deriveChild(
      PrivateKey.fromString(protocolID),
      PrivateKey.fromString('master')
    )
    return new KeyDeriver(childKey)
  }
}

UTXO Management and Balance Tracking

Important: In modern SDK-based applications, you should NOT manually track UTXOs by querying external APIs. The SDK provides built-in UTXO management.

How UTXO Tracking Works

When you create transactions using the SDK:

Backend Applications: Use Transaction class which handles UTXO selection automatically
Frontend Applications: WalletClient manages UTXOs through wallet integration
ARC Integration: Submit transactions to ARC, which provides status and confirmation
No Manual Fetching: Don't query blockchain explorers for UTXOs

Transaction Creation (Basic Pattern)

import { PrivateKey, Transaction, P2PKH } from '@bsv/sdk'

class WalletWithTransactions {
  private wallet: HDWallet

  constructor(wallet: HDWallet) {
    this.wallet = wallet
  }

  /**
   * Create and sign a transaction
   * Note: UTXOs are provided by your application's UTXO tracking system,
   * NOT fetched from external APIs
   */
  async createTransaction(
    recipientAddress: string,
    amountSatoshis: number,
    changeIndex: number = 0
  ): Promise<Transaction> {
    // Create new transaction
    const tx = new Transaction()

    // Add outputs
    tx.addOutput({
      satoshis: amountSatoshis,
      lockingScript: new P2PKH().lock(recipientAddress)
    })

    // Note: In a real application, you would:
    // 1. Query your own database for available UTXOs
    // 2. Select appropriate UTXOs for the transaction
    // 3. Add them as inputs to the transaction
    // 4. Add change output to your own address
    // 5. Sign with appropriate private keys

    // Get signing key
    const privateKey = this.wallet.getPrivateKeyForAddress(0)

    // Sign transaction (SDK handles the signing logic)
    // In practice, you'd sign each input with the appropriate key
    await tx.sign()

    return tx
  }
}

Key Point: Your application should maintain its own UTXO state in a database. When transactions are created/confirmed, update your UTXO set accordingly. See the Transaction Management module for details.

Secure Key Storage Best Practices

Security is paramount when managing private keys on the backend. Follow these practices:

1. Never Hard-Code Keys

NEVER DO THIS:

// ❌ WRONG - Never hard-code keys
const privateKey = PrivateKey.fromWif('L4rK1yDtCWekvXuE6oXD9jCYfFNV2cWRpVuPLBcCU2z8TrisoyY1')

2. Environment Variables (Development Only)

For development and testing, use environment variables:

import { PrivateKey } from '@bsv/sdk'
import * as dotenv from 'dotenv'

dotenv.config()

// Load from environment
const masterKeyWIF = process.env.MASTER_PRIVATE_KEY
if (!masterKeyWIF) {
  throw new Error('MASTER_PRIVATE_KEY not set in environment')
}

const masterKey = PrivateKey.fromWif(masterKeyWIF)

.env file (NEVER commit to version control):

MASTER_PRIVATE_KEY=L4rK1yDtCWekvXuE6oXD9jCYfFNV2cWRpVuPLBcCU2z8TrisoyY1

.gitignore:

.env
.env.*
*.key
*.pem

3. Production Key Storage

For Production, Use:

Option A: Hardware Security Modules (HSM)

// Example: AWS CloudHSM, Azure Key Vault, Google Cloud KMS
import { KMSClient, SignCommand } from '@aws-sdk/client-kms'

class HSMWallet {
  private kmsClient: KMSClient
  private keyId: string

  constructor(keyId: string) {
    this.kmsClient = new KMSClient({ region: 'us-east-1' })
    this.keyId = keyId
  }

  /**
   * Sign transaction using HSM
   * Private key never leaves the HSM
   */
  async sign(message: Buffer): Promise<Buffer> {
    const command = new SignCommand({
      KeyId: this.keyId,
      Message: message,
      SigningAlgorithm: 'ECDSA_SHA_256'
    })

    const response = await this.kmsClient.send(command)
    return Buffer.from(response.Signature!)
  }
}

Option B: Encrypted Database Storage

import * as crypto from 'crypto'
import { PrivateKey } from '@bsv/sdk'

class EncryptedKeyStore {
  private encryptionKey: Buffer

  constructor(encryptionKey: string) {
    // Derive encryption key from master password
    this.encryptionKey = crypto.scryptSync(encryptionKey, 'salt', 32)
  }

  /**
   * Encrypt private key for database storage
   */
  encryptPrivateKey(privateKey: PrivateKey): string {
    const algorithm = 'aes-256-gcm'
    const iv = crypto.randomBytes(16)
    const cipher = crypto.createCipheriv(algorithm, this.encryptionKey, iv)

    const keyWIF = privateKey.toWif()
    let encrypted = cipher.update(keyWIF, 'utf8', 'hex')
    encrypted += cipher.final('hex')

    const authTag = cipher.getAuthTag()

    // Store: iv + authTag + encrypted data
    return JSON.stringify({
      iv: iv.toString('hex'),
      authTag: authTag.toString('hex'),
      data: encrypted
    })
  }

  /**
   * Decrypt private key from database
   */
  decryptPrivateKey(encryptedData: string): PrivateKey {
    const { iv, authTag, data } = JSON.parse(encryptedData)
    const algorithm = 'aes-256-gcm'

    const decipher = crypto.createDecipheriv(
      algorithm,
      this.encryptionKey,
      Buffer.from(iv, 'hex')
    )

    decipher.setAuthTag(Buffer.from(authTag, 'hex'))

    let decrypted = decipher.update(data, 'hex', 'utf8')
    decrypted += decipher.final('utf8')

    return PrivateKey.fromWif(decrypted)
  }

  /**
   * Encrypt mnemonic phrase
   */
  encryptMnemonic(mnemonic: string): string {
    const algorithm = 'aes-256-gcm'
    const iv = crypto.randomBytes(16)
    const cipher = crypto.createCipheriv(algorithm, this.encryptionKey, iv)

    let encrypted = cipher.update(mnemonic, 'utf8', 'hex')
    encrypted += cipher.final('hex')

    const authTag = cipher.getAuthTag()

    return JSON.stringify({
      iv: iv.toString('hex'),
      authTag: authTag.toString('hex'),
      data: encrypted
    })
  }

  /**
   * Decrypt mnemonic phrase
   */
  decryptMnemonic(encryptedData: string): string {
    const { iv, authTag, data } = JSON.parse(encryptedData)
    const algorithm = 'aes-256-gcm'

    const decipher = crypto.createDecipheriv(
      algorithm,
      this.encryptionKey,
      Buffer.from(iv, 'hex')
    )

    decipher.setAuthTag(Buffer.from(authTag, 'hex'))

    let decrypted = decipher.update(data, 'hex', 'utf8')
    decrypted += decipher.final('utf8')

    return decrypted
  }
}

// Usage
const keyStore = new EncryptedKeyStore(process.env.MASTER_ENCRYPTION_KEY!)

// Encrypt for storage
const wallet = new HDWallet()
const mnemonic = wallet.exportMnemonic()
const encryptedMnemonic = keyStore.encryptMnemonic(mnemonic)

// Store in database
await db.wallets.insert({
  userId: 'user123',
  encryptedMnemonic,
  createdAt: new Date()
})

// Later: Retrieve and decrypt
const record = await db.wallets.findOne({ userId: 'user123' })
const decryptedMnemonic = keyStore.decryptMnemonic(record.encryptedMnemonic)
const restoredWallet = HDWallet.fromMnemonic(decryptedMnemonic)

Option C: Secret Management Services

// Example: HashiCorp Vault, AWS Secrets Manager
import { SecretsManagerClient, GetSecretValueCommand } from '@aws-sdk/client-secrets-manager'

class SecretManagerWallet {
  private client: SecretsManagerClient

  constructor() {
    this.client = new SecretsManagerClient({ region: 'us-east-1' })
  }

  /**
   * Load private key from AWS Secrets Manager
   */
  async loadPrivateKey(secretName: string): Promise<PrivateKey> {
    const command = new GetSecretValueCommand({
      SecretId: secretName
    })

    const response = await this.client.send(command)
    const secretString = response.SecretString!
    const secret = JSON.parse(secretString)

    return PrivateKey.fromWif(secret.privateKey)
  }

  /**
   * Load HD wallet from Secrets Manager
   */
  async loadHDWallet(secretName: string): Promise<HDWallet> {
    const command = new GetSecretValueCommand({
      SecretId: secretName
    })

    const response = await this.client.send(command)
    const secretString = response.SecretString!
    const secret = JSON.parse(secretString)

    return HDWallet.fromMnemonic(secret.mnemonic)
  }
}

4. Security Checklist

Key Storage:

Use HSM/KMS for production environments
Encrypt keys at rest in database
Use secret management services (Vault, AWS Secrets Manager)
Never log private keys or mnemonics
Implement key rotation policies
Use separate keys for different environments (dev/staging/prod)

Access Control:

Limit access to key storage systems
Implement role-based access control (RBAC)
Audit all key access
Use multi-signature for high-value operations
Implement rate limiting on signing operations

Operational Security:

Never commit keys to version control
Use .gitignore for sensitive files
Rotate keys regularly
Monitor for unauthorized access
Have key recovery procedures
Test backup and restore procedures

Development vs Production:

Use testnet for development
Separate keys for dev/staging/prod
Use environment-specific configuration
Never use production keys in development

5. Key Rotation Example

class RotatableWallet {
  private currentWallet: HDWallet
  private version: number

  constructor(mnemonic: string, version: number = 1) {
    this.currentWallet = HDWallet.fromMnemonic(mnemonic)
    this.version = version
  }

  /**
   * Rotate to new master key
   * Returns new mnemonic that should be securely stored
   */
  rotate(): string {
    this.version++
    const newWallet = new HDWallet(undefined, `wallet-v${this.version}`)
    const newMnemonic = newWallet.exportMnemonic()

    this.currentWallet = newWallet

    // In production:
    // 1. Generate new wallet
    // 2. Move funds from old wallet to new wallet
    // 3. Archive old wallet securely
    // 4. Update encrypted storage with new wallet

    return newMnemonic
  }

  getVersion(): number {
    return this.version
  }
}

Complete Production Wallet Example

Here's a complete example demonstrating production-ready patterns:

import { PrivateKey, Mnemonic } from '@bsv/sdk'
import * as crypto from 'crypto'

interface WalletConfig {
  encryptionKey: string
  network: 'mainnet' | 'testnet'
  protocolID: string
}

interface WalletBackup {
  encryptedMnemonic: string
  network: string
  version: number
  createdAt: string
}

class ProductionWallet {
  private wallet: HDWallet
  private keyStore: EncryptedKeyStore
  private network: 'mainnet' | 'testnet'
  private version: number

  private constructor(
    wallet: HDWallet,
    keyStore: EncryptedKeyStore,
    network: 'mainnet' | 'testnet',
    version: number = 1
  ) {
    this.wallet = wallet
    this.keyStore = keyStore
    this.network = network
    this.version = version
  }

  /**
   * Create new wallet
   */
  static create(config: WalletConfig): ProductionWallet {
    const wallet = new HDWallet(undefined, config.protocolID)
    const keyStore = new EncryptedKeyStore(config.encryptionKey)

    return new ProductionWallet(wallet, keyStore, config.network)
  }

  /**
   * Restore wallet from encrypted backup
   */
  static restore(backup: WalletBackup, config: WalletConfig): ProductionWallet {
    const keyStore = new EncryptedKeyStore(config.encryptionKey)
    const mnemonic = keyStore.decryptMnemonic(backup.encryptedMnemonic)
    const wallet = HDWallet.fromMnemonic(mnemonic, config.protocolID)

    return new ProductionWallet(
      wallet,
      keyStore,
      backup.network as 'mainnet' | 'testnet',
      backup.version
    )
  }

  /**
   * Generate new receiving address
   */
  generateReceiveAddress(index: number): string {
    return this.wallet.generateAddress(index)
  }

  /**
   * Get private key for signing (internal use only)
   */
  private getSigningKey(index: number): PrivateKey {
    return this.wallet.getPrivateKeyForAddress(index)
  }

  /**
   * Export encrypted backup
   */
  exportBackup(): WalletBackup {
    const mnemonic = this.wallet.exportMnemonic()
    const encryptedMnemonic = this.keyStore.encryptMnemonic(mnemonic)

    return {
      encryptedMnemonic,
      network: this.network,
      version: this.version,
      createdAt: new Date().toISOString()
    }
  }

  /**
   * Get public wallet information (safe to expose)
   */
  getPublicInfo() {
    return {
      network: this.network,
      version: this.version,
      firstAddress: this.wallet.generateAddress(0)
    }
  }

  /**
   * Verify backup can be restored
   */
  static verifyBackup(backup: WalletBackup, config: WalletConfig): boolean {
    try {
      const restored = ProductionWallet.restore(backup, config)
      return restored !== null
    } catch (error) {
      console.error('Backup verification failed:', error)
      return false
    }
  }
}

// Usage Example
const config: WalletConfig = {
  encryptionKey: process.env.WALLET_ENCRYPTION_KEY!,
  network: 'testnet',
  protocolID: 'my-app-wallet'
}

// Create new wallet
const wallet = ProductionWallet.create(config)
console.log('Wallet Info:', wallet.getPublicInfo())

// Generate addresses
const address1 = wallet.generateReceiveAddress(0)
const address2 = wallet.generateReceiveAddress(1)

// Create encrypted backup
const backup = wallet.exportBackup()

// Store backup in database (encrypted)
await db.wallets.insert({
  userId: 'user123',
  backup: backup,
  createdAt: new Date()
})

// Later: Restore from backup
const storedBackup = await db.wallets.findOne({ userId: 'user123' })
const restoredWallet = ProductionWallet.restore(storedBackup.backup, config)

// Verify backup integrity
const isValid = ProductionWallet.verifyBackup(backup, config)
console.log('Backup valid:', isValid)

Frontend Wallet Alternative: WalletClient

For frontend applications where users control their own keys, use WalletClient instead of managing keys directly.

When to Use WalletClient

Building a DApp (decentralized application)
Users need to control their own funds
Non-custodial architecture
Browser-based applications
Need wallet extension integration

WalletClient Quick Example

import { WalletClient } from '@bsv/sdk'

// Create WalletClient and connect to user's wallet
const wallet = new WalletClient('auto')
await wallet.connectToSubstrate()

// Request user's identity public key
const { publicKey } = await wallet.getPublicKey({ identityKey: true })

// Create action (auto-signs and broadcasts)
const result = await wallet.createAction({
  description: 'Send payment',
  outputs: [{
    lockingScript: new P2PKH().lock(recipientAddress).toHex(),
    satoshis: 10000,
    outputDescription: 'Payment'
  }]
})

const txid = result.txid

Key Difference: With WalletClient, the user's browser wallet handles all key management and signing. Your application never touches private keys.

Learn More: See the Wallet Client Integration module for complete frontend wallet implementation.

Testing Your Wallet

Unit Tests Example

import { describe, it, expect } from '@jest/globals'

describe('HDWallet', () => {
  it('should generate deterministic addresses from mnemonic', () => {
    const mnemonic = 'abandon abandon abandon abandon abandon abandon abandon abandon abandon abandon abandon about'

    const wallet1 = HDWallet.fromMnemonic(mnemonic)
    const wallet2 = HDWallet.fromMnemonic(mnemonic)

    expect(wallet1.generateAddress(0)).toBe(wallet2.generateAddress(0))
    expect(wallet1.generateAddress(1)).toBe(wallet2.generateAddress(1))
  })

  it('should derive different keys for different indices', () => {
    const wallet = new HDWallet()

    const addr0 = wallet.generateAddress(0)
    const addr1 = wallet.generateAddress(1)

    expect(addr0).not.toBe(addr1)
  })

  it('should restore wallet from backup', () => {
    const original = new HDWallet()
    const backup = original.exportMnemonic()

    const restored = HDWallet.fromMnemonic(backup)

    expect(original.generateAddress(0)).toBe(restored.generateAddress(0))
  })

  it('should encrypt and decrypt mnemonic', () => {
    const keyStore = new EncryptedKeyStore('test-password')
    const original = 'abandon abandon abandon abandon abandon abandon abandon abandon abandon abandon abandon about'

    const encrypted = keyStore.encryptMnemonic(original)
    const decrypted = keyStore.decryptMnemonic(encrypted)

    expect(decrypted).toBe(original)
  })
})

Integration Testing on Testnet

// Always use testnet for development and testing
const wallet = new HDWallet(undefined, 'testnet-wallet')

// Get testnet address
const testAddress = wallet.generateAddress(0)
console.log('Testnet Address:', testAddress)

// Fund this address from testnet faucet:
// Get testnet coins from MetaNet Desktop Wallet's built-in faucet or BSV Discord community

// Test transaction creation (covered in next module)
// ...

Practice Exercises

Simple Wallet: Create a simple wallet and derive 10 addresses
HD Wallet: Create an HD wallet with BRC-42 and generate addresses
Encryption: Implement mnemonic encryption and decryption
Backup & Restore: Export wallet backup and restore it
Key Derivation: Derive specialized keys for signing, encryption
Production Setup: Configure encrypted key storage with environment variables

Summary

What You Learned:

Difference between backend and frontend wallet paradigms
How to create simple and HD wallets using the SDK
BRC-42 key derivation for hierarchical key management
Security best practices for production key storage
When to use WalletClient for frontend applications

Key Takeaways:

Backend wallets: You control keys, you're responsible for security
Frontend wallets: Users control keys via WalletClient
Always use HD wallets for production (BRC-42)
Never expose private keys in logs, APIs, or UI
Use HSM/encryption for production key storage
Test on testnet before deploying to mainnet

Next Steps

Now that you understand wallet management, let's create and broadcast transactions!

Continue to: Your First Transaction

Security Reminders

Critical Security Rules:

Never share your private key or mnemonic phrase with anyone
Always backup your mnemonic in a secure location
Use testnet for learning and development until you're confident
Encrypt all private keys stored in databases or files
Use HSM/KMS for production environments
Never commit keys to git - use .gitignore
Implement key rotation policies for long-running services
Test with small amounts before moving to production
Audit your security practices regularly
Have incident response plans for key compromise

Your mnemonic phrase is the master key to all derived keys. Treat it like the password to your bank account - because it is!

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hashtagOverview

hashtagLearning Objectives

hashtagWhat is a Wallet?

hashtagBackend vs Frontend Wallet Paradigm

hashtagBackend Wallet (Custodial/Server-Side)

hashtagFrontend Wallet (Non-Custodial)

hashtagBackend Wallet Implementation

hashtagUnderstanding Wallet Types

hashtag1. Simple Wallet

hashtag2. HD Wallet (Hierarchical Deterministic)

hashtagCreating a Simple Wallet

hashtagStep 1: Generate a Private Key

hashtagStep 2: Derive Public Key and Address

hashtagStep 3: Create a Basic Wallet Class

hashtagCreating an HD Wallet with BRC-42

hashtagUnderstanding BRC-42 Key Derivation

hashtagStep 1: Generate Mnemonic Seed Phrase

hashtagStep 2: Derive Master Private Key

hashtagStep 3: Implement HD Wallet with BRC-42

hashtagAdvanced: Using KeyDeriver for Complex Hierarchies

hashtagUTXO Management and Balance Tracking

hashtagHow UTXO Tracking Works

hashtagTransaction Creation (Basic Pattern)

hashtagSecure Key Storage Best Practices

hashtag1. Never Hard-Code Keys

hashtag2. Environment Variables (Development Only)

hashtag3. Production Key Storage

hashtagOption A: Hardware Security Modules (HSM)

hashtagOption B: Encrypted Database Storage

hashtagOption C: Secret Management Services

hashtag4. Security Checklist

hashtag5. Key Rotation Example

hashtagComplete Production Wallet Example

hashtagFrontend Wallet Alternative: WalletClient

hashtagWhen to Use WalletClient

hashtagWalletClient Quick Example

hashtagTesting Your Wallet

hashtagUnit Tests Example

hashtagIntegration Testing on Testnet

hashtagPractice Exercises

hashtagSummary

hashtagRelated Components

hashtagRelated Code Features

hashtagNext Steps

hashtagSecurity Reminders

Overview

Learning Objectives

What is a Wallet?

Backend vs Frontend Wallet Paradigm

Backend Wallet (Custodial/Server-Side)

Frontend Wallet (Non-Custodial)

Backend Wallet Implementation

Understanding Wallet Types

1. Simple Wallet

2. HD Wallet (Hierarchical Deterministic)

Creating a Simple Wallet

Step 1: Generate a Private Key

Step 2: Derive Public Key and Address

Step 3: Create a Basic Wallet Class

Creating an HD Wallet with BRC-42

Understanding BRC-42 Key Derivation

Step 1: Generate Mnemonic Seed Phrase

Step 2: Derive Master Private Key

Step 3: Implement HD Wallet with BRC-42

Advanced: Using KeyDeriver for Complex Hierarchies

UTXO Management and Balance Tracking

How UTXO Tracking Works

Transaction Creation (Basic Pattern)

Secure Key Storage Best Practices

1. Never Hard-Code Keys

2. Environment Variables (Development Only)

3. Production Key Storage

Option A: Hardware Security Modules (HSM)

Option B: Encrypted Database Storage

Option C: Secret Management Services

4. Security Checklist

5. Key Rotation Example

Complete Production Wallet Example

Frontend Wallet Alternative: WalletClient

When to Use WalletClient

WalletClient Quick Example

Testing Your Wallet

Unit Tests Example

Integration Testing on Testnet

Practice Exercises

Summary

Related Components

Related Code Features

Next Steps

Security Reminders