What is derivation path and why I need it?

In my article about Bitcoin Cash wallet I wrote about the importance of the seed.

To know the seed is very important, but it is not enough. You still have to know the appropriate derivation path.

Derivation Path is a wallet organizer in the form of numbers.

The combination of seed and derivation path generates several addresses in one wallet. You can read a good article about it here.

Two main derivation paths are used in Bitcoin Cash wallets.

The old form, which also use Bitcoin BTC wallets:

m/44'/0'/0'

And the new form, Wich is used in Electron Cash by default:

m/44'/145'/0' 

Different wallets use different derivation paths, so you must always make sure that a correct derivation path is used when you enter your seed.

The Bitcoin.com wallet and the read.cash wallet use the old derivation path, and the atomic wallet uses the new derivation path. Which derivation paths are used is usually indicated on the websites of the wallets.

The best are wallets, like Electron Cash, where you can specify the derivation path when importing the seed.

If you want to check why derivation path is important, you can try electron cash, atomic wallet and read.cash wallet.

Install atomic wallet, write down the seed and perform some transactions. I did three transactions:

Then imported the seed, wich you used in the atomic wallet into electron cash. To do it install electron cash wallet, click on "New wallet"

Then choose "Restore from seed" and give the wallet name and a password

Now type your atomic wallet seed and use the default derivation path m/44'/145'/0'

Now you will see can your atomic wallet amount and transactions in electron cash wallet

Atomic wallet doesn't use change addresses, therefore uncheck the box in electron cash wallet.

Now you can use both wallets for the same address. Your amount and your transactions will be synchronized automatically in both wallets. Why you can use both wallets at the same time for one address, you can read in my article.

You can do the same if you use Exodus Wallet or Trust Wallet. Both wallets also use the derivation path m/44'/145'/0' .

You can do the same with your read cash wallet, but you have to use derivation path m/44'/0'/0' when you import the seed.

If you import the read.cadh seed into electron cash wallet, you will see all your read.cash transactions in electron cash wallet. If you unchecked the box "use change addresses" you can use electron cash wallet for your read.cash account.

You can do the same for Bitcoin.com wallet. Bitcoin.com wallet use change addresses, therefore you have to check the box "Use change addresses"

Now try to import a wallet with a not matching derivation path. You will notice that not a single transaction will be seen and the amount will always be 0.

Important Notice!

If you have SLP token in your Bitcoin.com wallet, you are not allowed to import your seed into the normal version of electron cash or other non SLP wallet. You can only import it into electron cash SLP version. If you import the seed into a non-SLP version and perform transactions, your SLP token will be destroyed.

How Bitcoin Cash does work you can read here.