Glossary
Having multiple accounts
Bitcoin and other cryptocurrencies are completely decentralized. There is no central entity with the mission of creating accounts on the network, and the participants are responsible for making their accounts. We have already seen that creating an account starts with choosing a really large random number. We have also seen that this is usually done by wallets.
Considering that anyone can create an account. Not just one, but as many as they want. The quantity of possible numbers is so large that it allows anyone to create an almost unlimited amount of accounts. What if two people choose the same number? Well, that’s why we should let an algorithm pick a number for us. The chance of the algorithm choosing the same number that another one has already chosen is practically zero.
Other important questions are: do I need to create an account for each blockchain I want to participate in? Can I use the same account? These are subtle concerns. If such blockchains use the same type of cryptography, such as elliptic curve cryptography, it is possible to use the same private key on multiple blockchains. While technically each blockchain will have its own account, they are managed by the same private key.
One last relevant question: I can create multiple accounts on a blockchain, but what is the advantage of that? This question has several possible answers, but we will limit ourselves to one related to privacy.
Blockchains are not anonymous but pseudo-anonymous environments. Although accounts on the network are not identified by personal information, once we can identify the owner of a specific account it is possible to track the history of that account and, correspondingly, of its owner. Using multiple accounts alleviates this issue. Some exchanges use a new account for each new transaction.
Although it guarantees greater privacy, using multiple accounts can be cumbersome. The wallet will have to manage the assets of several accounts and, in principle, keep the private key of each of them. You would also have to back up several private keys, what isn’t very practical.
Fortunately, there is a more convenient way to have multiple accounts. A proposal was put forward by Bitcoin and implemented by various wallets since then. In it, a master key - known as a seed - is generated, and from the seed it is possible to create an unlimited amount of child keys. Because child keys can be recreated from the seed, only the seed needs to be backed up.
To make this process even more user-friendly, the seed can be generated from 12 to 24 words, also known as a Mnemonic Phrase. Thus, remembering only the words make it possible to regenerate the seed and then all the child keys. People have a much easier time memorizing words than huge numbers. Extra care must be taken in this case, however. Anyone with access to the Mnemonic Phrase will have access to all accounts generated from them.
