Change vs Receive Addresses – The Role of Level 4
The fourth level in a standard BIP-44 derivation path is known as the change level. It uses only two possible values: zero or one. Zero represents external addresses, which are the ones you give to other people to receive funds. One represents internal addresses, also called change addresses, which your wallet automatically creates when it sends money and needs somewhere to put the leftover amount.
This separation exists for privacy and organization. When you receive Bitcoin or Ethereum, the wallet shows you a fresh address from the external chain (change = 0). When you spend funds, the remaining balance goes to a new address on the internal chain (change = 1). Keeping these separate makes it harder for blockchain observers to link all your transactions together.
Why Change Is Never Hardened
Unlike the first three levels, the change level is not hardened. Hardening prevents parent-to-child derivation when only public keys are known, but for change addresses this protection is not needed. Wallets need to generate both external and internal addresses from the same account key without exposing private keys. Using non-hardened derivation here allows efficient scanning and balance checking without compromising the higher hardened levels.
How Wallets Use This Level
- Receive address: m/44'/0'/0'/0/5 → external chain, sixth address
- Change address: m/44'/0'/0'/1/3 → internal chain, fourth address
- Most users only ever see external addresses
- Wallets manage internal addresses silently
The explainer tool marks this level clearly and always rejects attempts to harden it. This enforces the standard and helps users understand why wallets behave the way they do when generating addresses.
FAQ
Do I ever need to give out a change address?
No. Change addresses are only used internally by the wallet. You should only share external (receive) addresses.
What happens if I use change = 1 by mistake?
Funds sent to that address are still safe, but it breaks the privacy model. Most wallets will not display or reuse those addresses for receiving.
Why do some wallets show many change addresses?
Every time you spend, a new change address is created. Over time this builds a list of internal addresses that hold your remaining balance after each transaction.
The following article dives deeper into how the final address index level creates fresh addresses for everyday use.