How Does the Concept of ‘Key Derivation’ Impact the Security of Funds?

Key derivation is the process of generating new cryptographic keys from a single secret, like a seed phrase. It impacts security by allowing the entire wallet structure to be backed up by a single secret.

However, it also means that if the single seed phrase is compromised, all derived keys and associated funds are compromised. The deterministic nature ensures that keys are generated securely and consistently, reducing the need to manage numerous independent private keys.