diff --git a/src/wallet.js b/src/wallet.js
index d203a54..0af210d 100644
--- a/src/wallet.js
+++ b/src/wallet.js
@@ -6,7 +6,7 @@ var BigInteger = require('./jsbn/jsbn');
 var Transaction = require('./transaction').Transaction;
 var TransactionIn = require('./transaction').TransactionIn;
 var TransactionOut = require('./transaction').TransactionOut;
-var HDWallet = require('./hdwallet.js')
+var HDNode = require('./hdwallet.js')
 var SecureRandom = require('./jsbn/rng');
 var rng = new SecureRandom();
 
@@ -16,13 +16,6 @@ var Wallet = function (seed, options) {
     var options = options || {}
     var network = options.network || 'mainnet'
 
-    // HD first-level child derivation method (i.e. public or private child key derivation)
-    // NB: if not specified, defaults to private child derivation
-    // Also see https://bitcointalk.org/index.php?topic=405179.msg4415254#msg4415254
-    this.derivationMethod = options.derivationMethod || 'private'
-    assert(this.derivationMethod == 'public' || this.derivationMethod == 'private',
-        "derivationMethod must be either 'public' or 'private'");
-
     // Stored in a closure to make accidental serialization less likely
     var keys = [];
     var masterkey = null;
@@ -37,22 +30,26 @@ var Wallet = function (seed, options) {
     // Make a new master key
     this.newMasterKey = function(seed, network) {
         if (!seed) {
-            var seedBytes = new Array(32);
+            var seed= new Array(32);
             rng.nextBytes(seedBytes);
-            seed = convert.bytesToString(seedBytes)
         }
-        masterkey = new HDWallet(seed, network);
+        masterkey = new HDNode(seed, network);
         keys = []
     }
     this.newMasterKey(seed, network)
 
+    // HD first-level child derivation method (i.e. public or private child key derivation)
+    // NB: if not specified, defaults to private child derivation
+    // Also see https://bitcointalk.org/index.php?topic=405179.msg4415254#msg4415254
+    this.accountZero = masterkey.derivePrivate(0)
+    this.externalAccount = this.accountZero.derive(0)
+    this.internalAccount = this.accountZero.derive(1)
+
     // Add a new address
     this.generateAddress = function() {
-        if(this.derivationMethod == 'private')
-            keys.push(masterkey.derivePrivate(keys.length));
-        else
-            keys.push(masterkey.derive(keys.length));
-        this.addresses.push(keys[keys.length-1].getBitcoinAddress().toString())
+        var key = this.externalAccount.derive(keys.length)
+        keys.push(key); // consider removing this and derive on-demand for simplified encrypted keychain
+        this.addresses.push(key.getBitcoinAddress().toString())
         return this.addresses[this.addresses.length - 1]
     }
 
diff --git a/test/wallet.js b/test/wallet.js
index 650ad5c..0f6747c 100644
--- a/test/wallet.js
+++ b/test/wallet.js
@@ -1,10 +1,17 @@
 var Wallet = require('../src/wallet.js')
+var HDNode = require('../src/hdwallet.js')
+var convert = require('../src/convert.js')
 var assert = require('assert')
+var SHA256 = require('crypto-js/sha256')
+var Crypto = require('crypto-js')
 
 describe('Wallet', function() {
-  var seed = 'crazy horse battery staple'
+  var seed;
+  beforeEach(function(){
+    seed = convert.wordArrayToBytes(SHA256("don't use a string seed like this in real life"))
+  })
 
-  describe('default constructor', function() {
+  describe('constructor', function() {
     var wallet;
     beforeEach(function() {
       wallet = new Wallet(seed)
@@ -14,24 +21,43 @@ describe('Wallet', function() {
       assert.equal(wallet.getMasterKey().network, 'mainnet')
     })
 
-    it('defaults to private derivationMethod', function() {
-      assert.equal(wallet.derivationMethod, 'private')
+    it("generates m/0' as the main account", function() {
+      var mainAccount = wallet.accountZero
+      assert.equal(mainAccount.index, 0 + HDNode.HIGHEST_BIT)
+      assert.equal(mainAccount.depth, 1)
+    })
+
+    it("generates m/0'/0 as the external account", function() {
+      var account = wallet.externalAccount
+      assert.equal(account.index, 0)
+      assert.equal(account.depth, 2)
+    })
+
+    it("generates m/0'/1 as the internal account", function() {
+      var account = wallet.internalAccount
+      assert.equal(account.index, 1)
+      assert.equal(account.depth, 2)
+    })
+
+    describe('constructor options', function() {
+      var wallet;
+      beforeEach(function() {
+        wallet = new Wallet(seed, {network: 'testnet'})
+      })
+
+      it('uses the network if specified', function() {
+        assert.equal(wallet.getMasterKey().network, 'testnet')
+      })
     })
   })
 
-  describe('constructor options', function() {
+  describe('generateAddress', function(){
     var wallet;
-    beforeEach(function() {
-      wallet = new Wallet(seed, {network: 'testnet', derivationMethod: 'public'})
-    })
+    beforeEach(function() { wallet = new Wallet(seed, {network: 'testnet'}) })
 
-    it('uses the network if specified', function() {
-      assert.equal(wallet.getMasterKey().network, 'testnet')
-    })
-
-    it('uses the derivationMethod if specified', function() {
-      assert.equal(wallet.derivationMethod, 'public')
+    it('defaults to generating receiving addresses', function(){
+      assert.equal(wallet.generateAddress(), "n1GyUANZand9Kw6hGSV9837cCC9FFUQzQa")
+      assert.equal(wallet.generateAddress(), "n2fiWrHqD6GM5GiEqkbWAc6aaZQp3ba93X")
     })
   })
-
 })