The great widespread confusion on what a wallet is and derivation paths affectin

[btc-freedom-money]

I think it was difficult to learn about bitcoin wallet features in general. It seemed like every app has their own definitions for what a wallet is. Some wallets let you add a wallet to it. A wallet is supposed to be the software app that manages the private and public keys. So the definitions become confusing.

But I think I have learned it now and want to double check and also help others learn with a little summary so you have to look up yourself some terms if you don't understand something from summary or you can reply and ask.

Most wallets are HD wallets that use standard derivation paths.
The master seed and master private key is not used to store bitcoin. It is used to generate extended private and public keys. All extended keys are shielded with chain code which prevents people from finding out what all your other bitcoin addresses are.

But the bitcoin nodes can still know what your other addresses are if you don't use your own node. If the wallet uses a standard derivation path it should have the standard gap limit of 20 so the node shouldn't know more than the first 20 addresses that are children to an extended key. I've read in some websites it's over 200 not 20 but that is probably incorrect. lets be scientific.

I've also read websites saying you need to create a new seed phrase if you have used a public node and want to start having privacy with your own node. But this should also be incorrect because it should be enough to just create a new account which is a new extended key from the already existing master seed.

In conclusion, unless your seed phrase has been exposed, you never need to create a new seed phrase for privacy concerns because it's enough to just create a new account.
And I guess what wallet apps mean what they say "add a wallet", is to either add a new account or they mean import a extended key from another wallet app and make it an extended key in this one. And every wallet instead a wallet will be private and you will not be able to know by reading the blockchain history that those wallets are inside the same wallet by doing any kind of derivation attempt, that is not possible because extended keys are shielded from that with chain code.

[hosemary]

But the bitcoin nodes can still know what your other addresses are if you don't use your own node.

Not all nodes can link your addresses with each other.
Only the node that you are connected to can know that those addresses are owned by the same person.

If the wallet uses a standard derivation path it should have the standard gap limit of 20 so the node shouldn't know more than the first 20 addresses that are children to an extended key. I've read in some websites it's over 200 not 20 but that is probably incorrect. lets be scientific.

The gap limit has nothing to do with whether the wallet uses a standard derivation path or not.
Some wallets provide you only one address and some may provide you more addresses.

For example, the default gap limit in electrum is 20 and it allows you to change it.
Also note that the gap limit of 20 doesn't necessarily mean you will have exactly 20 addresses in your wallet, but it means that you will have 20 unused addresses.

[Cookdata]

But the bitcoin nodes can still know what your other addresses are if you don't use your own node. If the wallet uses a standard derivation path it should have the standard gap limit of 20 so the node shouldn't know more than the first 20 addresses that are children to an extended key. I've read in some websites it's over 200 not 20 but that is probably incorrect. lets be scientific.

The 20 gap limit is standard for wallet address that are empty, not wallet with many unspent Bitcoin. If you have an HD wallet seed phrase restored on any wallet software, it's going to scan your entire addreses to check if you have Bitcoin in your wallet addresses. Usually the default is 20 address, the wallet search your address and stop at 20 if it doesn't find any utxo on them but if you have more than 100 address that has utxo that are not spent, the wallet isn't going to stop at 20, it will scan your entire wallet addresses and show the 100 balance on your wallet.

The only challenge is, you have to increase the limit for the wallet. I don't know if this is same for all wallet but electrum allows you to increase your gap limit.^[1]

I've also read websites saying you need to create a new seed phrase if you have used a public node and want to start having privacy with your own node. But this should also be incorrect because it should be enough to just create a new account which is a new extended key from the already existing master seed.

The essence of seed phrase is to make your wallet life simple. If you don't want another node to know about your wallet address activities, you need to run your own node so to don't have to worry about creating a seed phrase or use an extended key, things will become cumbersome to handle. The essence of seed phrase is going to be defeated, you don't have to create an extended key anytime you connect to a public node.

[1] https://bitcointalk.org/index.php?topic=5316980.msg56338770#msg56338770

[BitMaxz]

If you use Electrum I don't think it's limited to 20 addresses that nodes can scan because the query that nodes use to determine where you're connected comes from an encrypted hash of your master public key. This means it can scan the entire wallet using the same derivation path.

In conclusion, unless your seed phrase has been exposed, you never need to create a new seed phrase for privacy concerns because it's enough to just create a new account.
And I guess what wallet apps mean what they say "add a wallet", is to either add a new account or they mean import a extended key from another wallet app and make it an extended key in this one. And every wallet instead a wallet will be private and you will not be able to know by reading the blockchain history that those wallets are inside the same wallet by doing any kind of derivation attempt, that is not possible because extended keys are shielded from that with chain code.

If your wallet seed phrase backup has been exposed, the entire wallet is at risk; even adding a new account on the same wallet won't save you from potential loss since the other account is just generated from the same seed.

Add a wallet on some wallet software or app; it is used as another term, but it is likely you are using an unused address from the same wallet derived from your seed.

In Electrum, if you use "add wallet," it generates a new seed, but for other wallets, like Bitget Wallet as a sample, it only generates another address derived from the seed on the same wallet.

This is confusing for a newbie and if you are using a non-standard bitcoin wallet.

Take note: if your seed phrase is exposed, having an extended key won't protect your wallet since it derives from your seed > master private key > extended private key (xprv).
So be very careful about the seed and master private key; it shouldn't be shared with anyone.

[hosemary]

If you use Electrum I don't think it's limited to 20 addresses that nodes can scan because the query that nodes use to determine where you're connected comes from an encrypted hash of your master public key. This means it can scan the entire wallet using the same derivation path.

No. Electrum never sends your master public key to the servers and this means that there is no way for the servers to know your master public key.
The server you connect to can only know the addresses that are within the gap limit.

[nc50lc]

-snip- that is not possible because extended keys are shielded from that with chain code.

I think you misunderstood the "chain code" as some sort of magic privacy improving thingy.

It's just the extra bits result from when a parent master/extended key is passed through HMAC SHA-512 to derive a child key or child extended key.
So, the first 256-bit is the private/public key and the next 256-bit is the chain code.

Documents explain that it's required to derive children keys from the parent.
So in term, even if the first part is exposed (the private/public key), it can't be used solely to derive the children. (this is probably what you've read)
But if you take those into account with the current standards, there's no known wallet implementation that use an extended key's public key part to be encoded into an address displayed by the wallet.
The standards use the "youngest" children keys, e.g.: at m/purpose'/coin'/account'/chain/address_index for the addresses.
If not the standard paths, the addresses are at least at the lower level in the derivation path which isn't an extended key where the other addresses are derived from.
In other words, the addresses that you're using to send/receive are derived from public keys without any children that can be linked to/by it.

And also, if an xpub/xprv is exposed, it's essentially the the private/public key and chain code parts bundled in one already.
Wallets do not export those separately, so in this case, the chain code doesn't shield the base58check-encoded xprv/xpub in any way.

In reality, other nodes or people initially can't link your addresses because those child keys are results of that pseudo-random and one-way function that I mentioned.
They can't link your other addresses without the parent extended public/private key or without the user doing any privacy-reducing practices.

[pooya87]

In conclusion, unless your seed phrase has been exposed, you never need to create a new seed phrase for privacy concerns because it's enough to just create a new account.

If your seed phrase were exposed, you would have security concerns not privacy concerns alone. Because with your seed phrase, they'd have access to all your private keys.

Also you keep using the term "account", depending on the wallet you are using it could mean different things. You need to clarify what wallet you have in mind, for example in Electrum there is no such concept and you'd need to create a new wallet with a new seed phrase.

[satscraper]

Also you keep using the term "account", depending on the wallet you are using it could mean different things. You need to clarify what wallet you have in mind, for example in Electrum there is no such concept and you'd need to create a new wallet with a new seed phrase.

As OP refereed to hierarchical deterministic wallet ^{"Most wallets are HD wallets that use standard derivation paths"} account refers to that hierarchical level that "splits the key space into independent user identities"

Regarding Electrum, I haven't used it for a long time, but as far as I remember you can change the last index in the proposed ^(default) derivation path to get the different account associated with the same SEED phrase.

[Forsyth Jones]

I understand the OP's approach. Some wallets actually refer to new wallets as new accounts (or vice versa) , but in technical terms, an account means a new extended private/public key that is related to the BIP32 root key.

Therefore:

New wallet = New seed, new master key and extended private keys.

New account = A sub-wallet where addresses and balances are not mixed with the initial index (initial account or zero index), but is still fully associated with/dependent on the BIP32 seed and/or root master key.

Some wallets don't even use this account feature.

I recommend the OP read the articles on this site, which cover the technical aspects and background on how wallets and cryptography work: https://learnmeabitcoin.com/

I also recommend applying the knowledge covered on the iancoleman website (don't use your main seed, generate or use only test seeds that will never be used).
https://iancoleman.io/bip39/

[NotATether]

But the bitcoin nodes can still know what your other addresses are if you don't use your own node. If the wallet uses a standard derivation path it should have the standard gap limit of 20 so the node shouldn't know more than the first 20 addresses that are children to an extended key. I've read in some websites it's over 200 not 20 but that is probably incorrect. lets be scientific.

This should not be possible, other nodes knowing random other addresses that are associated with your seed, unless your wallet software is sharing the wallet's master public key (or one of the extended public keys), and why would a wallet do that in the first place? Or perhaps it is sharing the addresses to an SPV server and it is an SPV client.

BIP44, 49 and 84 seed phrases (corresponding to 1, 3, and bc1 addresses respectively) use hardened derivation for the first three levels, so it is exceedingly unlikely that someone will end up with your master private key or seed phrase.

And I guess what wallet apps mean what they say "add a wallet", is to either add a new account or they mean import a extended key from another wallet app and make it an extended key in this one. And every wallet instead a wallet will be private and you will not be able to know by reading the blockchain history that those wallets are inside the same wallet by doing any kind of derivation attempt, that is not possible because extended keys are shielded from that with chain code.

Usually those wallet softwares are talking about creating a new BIP39 seed entirely, not an account. AFAIK only Sparrow wallet deals with accounts. Maybe a few others too.