BIP 84: A Comprehensive Guide to P2WPKH-based Account Derivation Scheme

Hey there! ๐Ÿ‘‹ BIP 84 is all about simplifying the way we create and manage Bitcoin wallet addresses. ๐Ÿš€ It stands for Bitcoin Improvement Proposal 84, which is a derivation scheme specifically designed for P2WPKH (Pay-to-Witness Public Key Hash) accounts. ๐Ÿ” In simpler terms, it’s a more efficient approach for generating wallet addresses that are compatible with SegWit (a Bitcoin network upgrade for improved scalability ๐Ÿ“ˆ). By following this standard, wallet developers can ensure that their products are compatible with others, making it super easy to switch between wallets without any hassle. ๐Ÿ˜Ž So, BIP 84 is a brilliant step forward in enhancing Bitcoin’s user experience! ๐ŸŒŸ

๐ŸŒ BIP 84: A Comprehensive Guide to P2WPKH-based Account Derivation Scheme โš™๏ธ

๐ŸŒ BIP 84: A Comprehensive Guide to P2WPKH-based Account Derivation Scheme โš™๏ธ

Introduction ๐Ÿค“

Hello there! Are you curious about the inner workings of Bitcoin Improvement Proposals, particularly BIP 84? You’ve landed in the right place! ๐ŸŽฏ In this article, we’ll explain everything you need to know about BIP 84, including the famous P2WPKH-based account derivation scheme. So, buckle up and get ready for an exciting journey! ๐Ÿš€

But first, let’s recall what Bitcoin Improvement Proposals (BIPs) are. BIPs are basically documents used for proposing new features or improvements to the Bitcoin protocol. They follow a specific structure to ensure consistency and help developers understand the proposal before implementing the changes. ๐Ÿ‘จโ€๐Ÿ’ป

And now, let’s dive deep into the fascinating world of BIP 84!

๐Ÿ“š Table of Contents:

  1. P2WPKH: An Overview ๐ŸŒŸ
  2. Why Use BIP 84? ๐Ÿค”
  3. A Peek into Hierarchical Deterministic Wallets ๐ŸŒณ
  4. Deriving P2WPKH Addresses ๐Ÿ“ˆ
  5. BIP 84 in Action ๐ŸŽฌ
  6. Benefits of P2WPKH-based Derivation ๐ŸŽฏ
  7. Comparison with Other BIPs ๐ŸฅŠ
  8. BIP 84 Pros and Cons ๐Ÿ
  9. Conclusion ๐ŸŽ‰

๐Ÿ’ก 1. P2WPKH: An Overview ๐ŸŒŸ

In a nutshell, P2WPKH (short for Pay-to-Witness-Public-Key-Hash) is a sleek, modern payment scheme introduced with the activation of Segregated Witness (SegWit) to the Bitcoin network. This modified payment scheme allows for greater transaction efficiency, reduced transaction fees, and better support for future protocol upgrades. ๐Ÿš„

๐Ÿ’ก 2. Why Use BIP 84? ๐Ÿค”

The primary goal of BIP 84 is to standardize the derivation paths for P2WPKH addresses, making it easier for wallet creators to adopt SegWit and offer a seamless user experience. By following its proposed account derivation scheme, wallet implementations can make sure their applications are compatible with one another. Interoperability, oh yes! ๐ŸŒ‰

๐Ÿ’ก 3. A Peek into Hierarchical Deterministic Wallets ๐ŸŒณ

Before diving into the details of BIP 84, we should know a bit about Hierarchical Deterministic (HD) wallets. HD wallets use a deterministic approach to generate cryptocurrency addresses and private keys from a master seed. HD wallets allow for the generation of multiple addresses and easy user recovery using seed phrases. This makes managing multiple addresses stress-free, safe, and private! ๐Ÿ›ก๏ธ

๐Ÿ’ก 4. Deriving P2WPKH Addresses ๐Ÿ“ˆ

Now, let’s get into the technical nitty-gritty! ๐Ÿค–

The key to BIP 84 derivation paths is understanding the structure of a derivation path. A typical BIP 84 derivation path looks like this – m/84'/coin_type'/account'/change/index. Here’s a quick breakdown:

  1. m: Master key. The starting point for derivation. ๐Ÿ—๏ธ
  2. 84': The purpose field specifies the BIP standard used (BIP 84). ๐Ÿ”—
  3. coin_type': A constant that changes for different cryptocurrency networks (e.g., 0 for Bitcoin, 1 for Testnet, etc.) ๐Ÿช™
  4. account': An integer that allows users to have multiple accounts within a wallet. ๐Ÿ“’
  5. change: A binary value (0 or 1) used to categorize transaction outputs. (0 for external/receive, 1 for internal/change) ๐Ÿงฎ
  6. index: For generating many addresses from the same account for privacy. ๐Ÿท๏ธ

Put all the pieces together, and you got yourself a full BIP 84 derivation path! Smart, isn’t it? ๐Ÿง 

๐Ÿ’ก 5. BIP 84 in Action ๐ŸŽฌ

Now, let’s see it in action. To generate P2WPKH addresses using BIP 84, follow these six steps:

  1. Create an HD wallet and generate a master seed. ๐ŸŒฐ
  2. Choose a BIP 84-compatible wallet implementation. (Some popular ones include Electrum, Trezor, and Ledger!) ๐ŸŒ
  3. Generate your P2WPKH key pair using the derivation path (m/84'/0'/0'/0/index for Bitcoin, for example). ๐Ÿ”
  4. To receive funds, share your P2WPKH address encoded in Bech32 format (e.g., bc1qabcdef...). ๐ŸŽ
  5. To spend funds, create a transaction that refers to a previous transaction output used as new input. ๐Ÿ’ธ
  6. Fees! The outputs’ total value should be less than the inputs’ total value. The difference is the transaction fee! ๐Ÿ’ฐ

And voilร , you’re now a P2WPKH champ! ๐Ÿ†

๐Ÿ’ก 6. Benefits of P2WPKH-based Derivation ๐ŸŽฏ

Following BIP 84 and using P2WPKH-based derivation paths have some remarkable perks:

  1. Interoperability – Easily switch between wallets and handle multiple cryptocurrencies with ease. ๐ŸŒ
  2. Privacy – Unique addresses for each transaction to maintain privacy. ๐Ÿ•ถ๏ธ
  3. Efficiency – Reduced transaction size thanks to SegWit, leading to lower fees. ๐Ÿ“‰
  4. Future-Proof – Improved support for upcoming protocol upgrades. ๐Ÿ”ฎ

๐Ÿ’ก 7. Comparison with Other BIPs ๐ŸฅŠ

Now you may ask, how does BIP 84 stack up against other BIPs? ๐Ÿคผ

  1. BIP 32: While BIP 32 deals with HD wallets, it doesn’t specify derivation paths, leading to compatibility issues. โš ๏ธ
  2. BIP 44: BIP 44 specifies a five-level derivation scheme covering multiple cryptocurrencies, but it mostly focuses on the P2PKH address format. ๐Ÿ’ณ
  3. BIP 49: P2WPKH-nested-in-P2SH (P2SH-P2WPKH), Seฬrieux! BIP 49 addresses size and compatibility issues, but it’s not as elegant as BIP 84’s native Bech32 P2WPKH addresses. ๐Ÿš

๐Ÿ’ก 8. BIP 84 Pros and Cons ๐Ÿ

No outline is complete without a quick review of advantages and disadvantages! ๐ŸŽญ


  1. Standardized derivation paths lead to compatibility across wallets. ๐Ÿ”„
  2. Reduced transaction fees and size (compliments of SegWit). ๐ŸŽข
  3. Privacy and security of HD wallets. ๐Ÿ”’
  4. Smoother user experience! ๐Ÿ˜Ž


  1. Limited wallet support (although it’s growing). ๐ŸŒฑ
  2. Slow adoption of native Bech32 addresses by some services. ๐Ÿšง

๐Ÿ’ก 9. Conclusion ๐ŸŽ‰

Who knew an account derivation scheme could be so exhilarating? ๐ŸŽ‡ With BIP 84 and its P2WPKH-based account derivation scheme, users can enjoy lower fees, increased privacy, and cross-wallet compatibility. All while benefiting from SegWit’s many advantages! ๐Ÿฅณ

Adopt BIP 84 and walk hand-in-hand with the future of bitcoin transactions! Gotta love progress, folks! ๐ŸŒŸ

And that, my friends, is a wrap! We hope you enjoyed this comprehensive guide to BIP 84 and P2WPKH-based account derivation. Until next time, happy Bitcoin-ing! ๐Ÿ’ƒ๐Ÿ•บ

Disclaimer: We cannot guarantee that all information in this article is correct. THIS IS NOT INVESTMENT ADVICE! We may hold one or multiple of the securities mentioned in this article. NotSatoshi authors are coders, not financial advisors.