Another HD wallet solution to generate privacy is a so-called merge and re-split operation. In this example, several entities anonymously submit new addresses to a smart contract. The contract collects the same amount from each party, let's say it's 100 bitcoins each. Then the contract re-deploys the amount to the new addresses.

An HD wallet uses algorithms to create a new public-private key pair for each transaction or piece of a larger trade. This thus would allow a user to have a virtually infinite number of public addresses all derived from a single master seed phrase, making their identity difficult to trace.