HSM-Secured Hierarchical Deterministic Wallets for Cryptocurrency Custody

The secure and scalable key management of cryptocurrency custodians and exchanges is a significant challenge. Hierarchical deterministic wallets, introduced in BIP32 (ECDSA) and SLIP10 (EdDSA), provide structured key derivation, enabling secure multi-account management and improved scalability. However, software-based hierarchical deterministic wallets expose master keys to malware, insider threats, and memory extraction attacks. In this research, we propose an Hardware Security Module (HSM) secured hierarchical deterministic wallet architecture that integrates HSMs to ensure tamper-resistant key storage and enforce access controls. We analyze the security and performance of BIP32 versus SLIP10 in an HSM environment by measuring key derivation speed, transaction signing efficiency, and resistance to attacks. Analyses results show that SLIP10 offers stronger security guarantees, while BIP32 remains dominant due to blockchain compatibility. Additionally, the proposed architecture provides a more secure and scalable option for the key management of cryptocurrency custodians and exchanges.