Description: Here we consider seed phrases: what these are, how they work, the benefits and risks of their usage, and tips on how to store them and protect yourself. Find it all here.
In cryptocurrency, security is king. Unlike traditional banking systems in which forgotten passwords can be reset with a quick phone call or email, crypto’s passwords exist in a contactless cloud, beyond the reach of phone calls and emails. A seed phrase is the key to accessing and recovering an entire crypto wallet at the core of this self-custody model. But though this is just a set of simple words, it is one of the most important and sensitive bits of information in the crypto space.
Image credit: Unchained Capital
In this post, we’re going to demystify a seed phrase: what is a seed phrase, how it works, why it’s crucial to the security of your wallet, and how to secure it from being lost and stolen.
Key Takeaways
A seed phrase, or recovery phrase, is the master key of your wallet and serves as a backup of your wallet in case your device gets lost/stolen/breaks.
Using it, you can regenerate your private key and access your funds.
If you lose a wallet, simply type the seed phrase into a compatible wallet app, and all your assets are restored.
For additional security, you should create more than one paper copy of these words and store them in separate offline locations.
Seed Phrase Basics
What is a seed phrase in crypto? A seed phrase, or recovery phrase, is a list of words that stores all the information needed to recover your cryptocurrency wallet onto any computer. It’s a human-readable backup of your private keys so you can access your funds even if you lose, break, or throw away your device. Seed phrases, on the other hand, are usually 12 to 24 words that you were given when you first set up your wallet.
What does it look like? Here is the seed phrase example (Metamask seed phrase):
Seed phrases are one of the most critical aspects of cryptocurrency security since they are your master key to your wallet and can help you recover it if your device is lost, stolen, or destroyed. They are a human-interpretable form of a much larger, more complex passphrase that a person would use to recover their funds had their primary means of accessing their wallet (device, key, password) been lost/stolen/compromised.
Here's why seed phrases matter:
Wallet recovery. They are the main method of recovering a cryptocurrency wallet when the original is lost, damaged, or stolen.
Private key backup. These words serve as a backup for the private keys required to authorize transactions.
Decentralized security. In the world of digital currencies, there is no central authority to reset a password or help you recover access to your holdings. Lose your wallet, and your funds are gone, as the seed phrase is the only way to recover them.
Emergency access. With seed phrases, you can get access to your money on different devices or platforms, always knowing your money is safe.
Your crypto wallet seed phrase is a string of entirely random words that gives anyone who holds it access to your cryptocurrency. Never share it with anyone, and don't have a record of it stored digitally in the cloud.
How a Seed Phrase Is Generated
Here is a simple, step-by-step approach to how to make a seed phrase.
Generate entropy. An entropy is calculated from a secure source of randomness, assuming a standard value of, e.g., 128 or 256 bits.
Create a checksum. The checksum is the truncated SHA-256 hash of the entropy, taking only the leading bits (4 bits in the case of 128-bit entropy) of the hash. This is also another error detection mechanism.
Combine entropy and checksum. The checksum is appended/rested at this entropy, so the derived binary string will be a bit longer.
Split into 11-bit segments. The concatenated binary string is divided into 11-bit blocks. An 11-bit number corresponds to an index in the BIP39 wordlist (2¹¹ = 2,048 words).
Convert to mnemonic words. For each 11-word segment, the corresponding word in the BIP39 word list is substituted.
Display the seed phrase. The output is a seed phrase consisting of 12, 18, or 24 words (most commonly – 12).
The seed words are produced to be compatible using BIP39 (Bitcoin Improvement Proposal 39), so this same sequence can be used in any wallet that supports BIP39.
Image credit: Shieldfolio
Mnemonic Generation Process
Once the mnemonic phrase is created, it is passed through another hashing algorithm, sometimes referred to as the password-based key derivation function (PBKDF), along with an optional password ("mnemonic + password"). This will get you the HD seed, from which you can generate your wallet’s master private key and full address hierarchy according to standards such as BIP32 or BIP44.
BIP39 Standard
BIP39 is a popular standard that describes how a seed phrase is generated and used. It outlines a process that turns an unpredictable binary data source (random or fast I/O devices, physical sources) that starts with purely random bits and produces a mnemonic that is easier to retain in human memory. Besides, it outlines the annotated list of 2,048 English words and how the binary sequence is generated from the seed phrase to get the private keys.
The vast majority of modern wallets (such as Bitcoin and Ethereum wallets) derive their seed phrase with BIP39.
How to Store a Seed Phrase
Since a seed phrase allows full access to your cryptocurrency wallet, its security is extremely important. If anyone ever gains access to your seed phrase, they can steal your holdings, and if you are so unfortunate as to lose this code, your wallet is lost for all eternity. There is a fine balance between the security of where to store your sequence of words, as well as availability and redundancy. Here are the tips on safe seed phrase storage.
Write it down, and never store it online. After the seed phrase is generated, write it down with pen and paper right away. Do not screenshot or store it in cloud drives, email, password managers, or messaging apps. The digital storage is very susceptible to malware, keyloggers, and hacks.
Use fireproof and waterproof storage. Keep a written phrase in a fire safe or safety deposit box, somewhere water and fire cannot devastate. Opt for metal backup tools like Cryptosteel, Billfodl®, and SteelWallet for long-term preservation. These instruments are fire, water, corrosion, and other environmental hazard resistant.
Avoid sharing it with anyone. A reminder: your Bitcoin seed phrase is private and personal; don’t share it, not even with friends or family, and definitely not with “support agents.” Phishing attacks will often ask for your phrase. No legitimate company or wallet service will ask for it.
Create redundancy. If you have multiple copies of your document, you can place the hard copies in different secure places (for instance, at home and in a safety deposit box). But be aware: the more copies, the more risk. If you do, make them just as secure as each other.
Memorize it (optional but risky). More advanced users tend to remember their seed phrase and keep a physical copy nowhere; these are so-called “brain wallets.” This method is risky. Human memory is unreliable, and once lost, a single word can never be recovered again.
Optionally, you can use a passphrase for added security. You can even have a passphrase tacked on to your seed phrase in BIP39. This anchors them a bit better. If you don’t have the passphrase (which I would be amazed if you did) and haven’t done anything stupid like write it on your computer, then even if your words are gone, your coins are safe.
Once again, losing the passphrase is the same as losing the seed phrase, so guard it the same way.
How to Recover Wallets Using Seed Phrases
The most important feature of this sequence of words is that they can be used to recover your crypto wallet and everything in it in case your device ever goes missing, is stolen, or just stops working. If you have your seed phrase (and a passphrase, if you have one), you should be able to restore your wallet on another compatible device/wallet software.
Here are the steps to recover your wallet step-by-step.
Choose a compatible wallet. You’ll want a wallet that deals with BIP39 seed phrases, because most cryptocurrency wallets are going to be doing that. Be sure when you’re downloading wallet software, it’s from an official source, or else you run the risk of getting phished.
Select “Restore” or “Recover” wallet. Instead, opt to restore an existing wallet, and you will be asked to enter your wallet’s seed phrase.
Enter the seed phrase carefully. Type in the 12, 18, or 24 words in the order in which they appear. Make sure the spellings and spacings are correct, as one misspelled word or it being the wrong way around can prevent recovery. If you entered a passphrase when you were creating the wallet, give them the passphrase when asked for.
Access your wallet. When the seed phrase is entered, your wallet software will restore your private keys and transaction history. Your crypto balances, tokens, and NFTs (if any) should show up. Your possessions are located on the blockchain, not on your phone. The seed phrase just regenerates the keys that demonstrate ownership of those assets.
Important! Never type in your seed phrase into an unknown website or an untrusted application, so always verify the source! If you’re recovering either a multi-asset or hierarchical wallet (such as those that follow either BIP44 or BIP84), the software should take care automatically to go down the right paths, but advanced users may be given access to a way to specify these manually.
Common Risks & Threats
Seed, recovery, or mnemonic phrases are risky and threat-filled, largely due to insecurity and human error within digital platforms. Key threats are phishing, malware, physical theft, and social engineering. These dangers could result in losing cryptocurrency.
Here are the detailed risks and threats explained:
Risk
Explaining
Phishing
Scammers create websites or emails/messages disguised as real crypto services (wallets, exchanges) and steal users’ data
Malware
Keyloggers, clipboard hijackers, and spyware can capture seed phrases that are typed or copied or kept digitally
Physical theft
Paper seed phrases can be stolen or wrecked if not stored effectively
Social Engineering
Scammers use manipulation and trickery to persuade someone to share their seed phrase
Risks of digital storage
By saving seed phrases to computers, phones or cloud storage, you open yourself to hacking, malware and even accidental deletes
Hardware Wallet Risks
Hardware wallets are not safe from fake devices or phishing attempts
Gradual Decay
Paper backups can fade, become destroyed, and become unreadable over time
Fatal Destruction
A fire or an accidental mishap can obliterate paper backups
Social Media Scams
Scammers harvest seed phrases shared on social networks by victims
Understand the risks and follow good security practices, and it is very unlikely that you’ll lose your cryptocurrency to seedphrase vulnerabilities.
How to Protect Your Seed Phrase
Because of its significance, you must have a way to protect your seed phrase. Here are some best practices:
Write it down: Always write down the sequence on paper or etch it into a metal plate. Never keep it, in digital form, anywhere that could be subject to hacking.
Store it safely: Store your written words in a secure, fire-resistant place. Think about putting it in a safety deposit box or home safe.
Never share it: Your seed phrase is something you and you alone should know. Never reveal it to anyone, not even your family or purported customer service.
Avoid anything digital: Don’t store your code on your computer, on your phone, or in the cloud. Such goods can be undermined by malware or by hacks.
Try splitting: If you have additional concerns regarding your overall security, you may want to divide your seed phrase into several pieces and keep them in different locations.
Image credit: Cryptoken
Alternatives to Seed Phrases
Seed words, recovery phrases, or wallet backup phrases are another way of backing up and restoring cryptocurrency wallets. But they are not risk-free, as they can be lost, stolen, or mislaid. The user could use multi-sig wallets, seedless wallets, or passwords in addition to seed phrases.
The alternatives include:
Alternative
Short description
Multi-Signature Wallets
Wallets that need multiple private keys to approve a transaction, which spreads the signing duty and heightens security
Passphrases
A passphrase makes it even more difficult for someone to access your wallet, as both a seed phrase and the passphrase are required
Seedless Wallets
Wallets that don’t have a single seed phrase as the recovery. Instead, they rely on technologies such as multi-party computations (MPC) or smart contracts to handle private keys
Hardware Wallets
These wallets keep your private keys offline so they are not subject to online hacks
Social Recovery
Many wallets enable you to assign trusted people or de jure entities who can assist in recovering your account should you ever lose access to your words
Conclusion
So, here we have considered seed phrase meaning and their role in the industry. Seed words are a secure backup so that you can recover your tokens if anything happens to your device. By establishing how to generate and securely store your recovery phrase in accordance with best practices, you are trimming your financial risk down by quite a margin.
Treat your seed phrase with utmost secrecy, and store it in a safe, offline place. This post gives you peace of mind to know how it functions and how to utilize it properly, all of which helps to protect your digital wealth, and most importantly, your access to your digital wealth when it matters most.
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