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    What is a Seed Phrase? | 3-Minute Explainer

     

    Seed phrase 24 words connected to a digital wallet with a padlock next to both

    Key Takeaways
    • A seed phrase, or recovery phrase, is crucial for securing your cryptocurrency holdings. If you’ve opted for crypto self-custody, this phrase ensures you can recover your wallet, even if your device is lost or damaged.
    • A recovery phrase is a sequence of 12, 18, or 24 words, following the BIP-39 standard, which is generated by a wallet to store private keys securely. It acts as a master key, allowing recovery of the wallet on any compatible device. This ensures cross-compatibility, promoting decentralization and preventing users from being tied to one wallet provider.
    • Proper storage of seed phrases is crucial. Some of the best practices include keeping your 24 words in a private, secure, offline location, protecting it from the elements, and avoiding sharing.
    • Your recovery phrase carries risks such as theft, loss, and misuse if not properly protected. However, it offers significant advantages, including universal wallet recovery, enhanced security, and a decentralized ecosystem.

    A recent study found that there are now an eye-watering 580 milion crypto holder globally. This means more than half a billion people navigating the specifics of crypto wallets, with self-custody a key feature of that journey. But blockchain involves some technical terminology, and it can be difficult for newcomers to understand. One of the most important terms to understand is the so-called “seed phrase”. In this article, we’ll explain this concept, highlighting what makes it so important and showing you how to better secure your crypto holdings.

    What is a seed phrase?

    A seed phrase, also known as a recovery phrase, is a sequence of words generated by your cryptocurrency wallet that contains the data for every private key stored by the wallet. This phrase allows you to recover your wallet on any other compatible device, ensuring you always have access to your funds, even if your original device is lost or damaged. 

    You’ve probably heard the mantra “never share your 24 words” and that’s no surprise. The seed phrase serves the role of a master key to your wallet. This makes it an essential security measure, protecting you against loss if you lose access to that wallet.

    What does a seed phrase look like?

    A recovery phrase usually consists of 12, 18, or 24 words. These words are selected from a list of 2048 designated words as dictated by the BIP-39 standard

    A 12-word seed phrase might look like this: “apple banana cherry dog eagle frog grape hat igloo jacket kite lemon”. Every unique phrase is randomly generated by the BIP-39 algorithm. 

    BIP-39 standard

    The BIP-39 standard was introduced back in 2013 as a method for generating mnemonic sentences for digital wallets. The goal of BIP-39 was to create a universal format for seed phrases, ensuring cross-compatibility between different wallet providers.

    How does this work? Imagine for a second that each wallet provider had its own unique format for recovery phrases. If you ever lost your crypto wallet and needed to access your private keys on another device, you’d be obliged to purchase your replacement wallet from the same provider. This not only gives a lot of power to the wallet provider, it also creates a risk for you – what if the wallet provider is no longer making devices? Your crypto would be gone.

    By making all recovery phrases conform to a standard format, BIP-39 ensures you can recover your wallet on any other device – hardware or software. For example, if Metamask ever stops working, you could still recover your funds on Phantom, Ledger or any other crypto wallet.

    This ensures the crypto industry maintains its objective of remaining decentralized. You are not tied to a single service and can freely recover your private keys on any crypto wallet 

    How secure is a seed phrase?

    To put it into perspective, even if you give someone the exact words of your seed phrase they won’t be able to guess the correct order. For example, the task of putting 24 words in the correct order would be a factorial of 24. This means there are roughly 620,000,000,000,000,000,000,000 possible ways to sort those words.

    Seed phrase vs private key – what’s the difference?

    While both are crucial for accessing your crypto, a seed phrase and a private key are different:

    • A seed phrase is a sequence of words that can regenerate all private keys for your wallet.
    • A private key is a unique string of characters that grants access to a specific crypto address.

    The recovery phrase serves as a master key, generating all private keys needed to access your various cryptocurrencies. In contrast, a private key is a specific code that allows transactions from a particular address. Using your 24 words, you can recover your entire wallet and all associated addresses and private keys.

    How to generate a seed phrase

    Whenever you set up a new self-custody crypto wallet, it will generate a unique seed phrase during the set up process. The words will be shown to you, in order, during the process, and you will be prompted to write them down. Remember – this is the only time you will ever be shown these words. So record them carefully and make sure they are in order.

    How to recover your crypto wallet

    If you lose your device or damage your device, or if for some reason your hot wallet software stops working, you’ll be able to recover all of your private keys using your seed phrase. 

    This involves entering the phrase into another crypto wallet, in effect setting up your old wallet on a new device or software. Once you successfully enter your seed phrase, your private keys will be restored and you’ll once again have access to the blockchain addresses where your crypto is stored.

    Remember: your crypto is not on the device itself. Your crypto is stored on the blockchain, and your wallet holds the private keys for those addresses.

    Storing your sed phrase: 5 essential rules

    When it comes to your crypto assets, the seed phrase to your wallet is your most sensitive piece of data. Anyone who has access to it can easily take control of your wallet and transfer anything in it. Here are five essential rules for storing your recovery phrase safely.

    Record your recovery phrase correctly

    This is probably the most important part. If you fail to write down the correct order of the seed phrase, you won’t be able to use it. Entering the wrong words or the correct words in the wrong order will not restore access to your wallet. Always double check the spelling of each word and their order.

    Store it in a secret location

    Anyone can use your 24 words to access your crypto wallet. So it’s critical to keep your seed phrase in a location that only you can access. This can be a safe, a secret compartment, or just a hidden place only you know of.

    Store it offline

    Never store your seed phrase in digital formats like cloud services or email to prevent loss. Hackers are getting creative and there are many different ways for a malicious party to steal digital information. For instance, clicking one bad link can allow hackers to completely drain your wallet of funds. Similarly, entering your details or seed phrase (never share your seed phrase anywhere) in a fake website can give attackers full control. That’s why it’s probably best if you go for the tried and true offline method of writing it down in a notebook.

    Make sure it’s water and fire proof

    It’s worth considering that the material you record your seed phrase on could be damaged. For example, a piece of paper might catch fire or get soaked, both of which would destroy your seed phrase. Use water-resistant, fire-resistant material or put the seed phrase in a secure place that won’t be susceptible to the elements.

    If you want to take it a step further, there are products that allow you to engrave your seed phrase on a metal plate.

    Never tell anyone your seed phrase

    Don’t tell anyone your phrase or its exact location. Anyone who has access to this phrase can use it to access your digital assets.

    Recovery phrase management services

    Recovery phrase services such as Ledger Recover offer to back-up your seed phrase by storing an encrypted, sharded version of its underlying data. This means if you ever lose the phrase altogether, you can rely on the service to give you access to your wallet again.

    Services like these have spurred controversy in the crypto sphere. They propose to offer convenience and security for users, but they also raise some big questions. With the ethos of crypto being self-custody and decentralization, the idea of sharing any sort of wallet data with a company is anathema to some people. It also creates a possibility that the service itself could be targeted by hackers. Although the encrypted data would take thousands of years to decrypt back into a readable seed phrase, recovery services nonetheless create a new threat vector for your data. These services are completely optional and only you can decide if it suits your crypto security framework.

    Advantages

    • Peace of mind: offers a last resort to recover lost funds
    • Convenient: unburdens you from the ultimate responsibility of managing your seed phrase

    Disadvantages

    • Controversial: many users consider it against the principles of self-custody
    • Security concerns: users worry the data might be mismanaged, risking their crypto
    • Centralization: goes against the decentralization and privacy principles of crypto
    • expensive: entails additional fees in the form of a monthly subscription

    Why are seed phrases important in crypto?

    Seed phrases play an important role in the wider crypto ecosystem:

    Security for users

    Seed phrases protect your funds from loss. They ensure there is always a last resort for accessing your crypto, even if the wallet itself is lost. If you have access to your seed phrase, you can easily recover your wallet.

    User-first format

    Seed phrases offer a straightforward way to recover your funds. By translating the complex, long numbers of your private keys into readable words, they offer a user-friendly wallet back up. They require no specific skills or technical knowledge, just the words in the correct order.

    Interoperability and decentralization

    By adhering to the BIP-39 standard, recovery phrases support a decentralized environment. You are not tied to a single wallet and you can freely switch between wallet providers without losing access to your funds.

    Recovery phrase risks

    Theft if exposed

    Your seed phrase allows you to recover a lost wallet. Anyone who knows the phrase can also use it.

    Loss if not backed up

    Unless you’ve signed up for a seed phrase management service beforehand, losing your seed phrase will mean the total loss of your assets (if you lose access to your wallet).

    Damage through poor storage

    If you’ve written your seed phrase on a loose piece of paper, there’s a high chance it might get damaged by water, fire or simply the passage of time. Losing the full list of words or their correct order will make the seed phrase unusable.

    A seed phrase is the master key to your crypto wallet. You must protect it from theft, loss, damage, and misuse. Proper storage, preventing theft and misuse are essential to ensure the safety of your crypto assets.

    Closing thoughts

    Understanding and properly managing your seed phrase is crucial for your crypto security. By following best practices for generating, storing, and using seed phrases, you can ensure your assets remain safe and accessible. Seed phrases are a cornerstone of cryptocurrency self-custody and play a vital role in the broader crypto ecosystem.

    Frequently asked questions

    Is my seed phrase the same as my private key?

    No, a seed phrase generates all your private keys, whereas a private key is specific to one crypto address.

    Where should I store my seed phrase?

    Store it in a secure, private, and offline location, such as a safe or a durable physical backup.

    Is a seed phrase different from a recovery phrase?

    No, a seed phrase and a recovery phrase are the same and you can use the phrases interchangeably.

    What are the risks to my seed phrase?

    Risks include theft, loss, damage, and misuse if not properly protected.

    What if I lose my seed phrase?

    If you lose your 24 words, you lose access to your crypto assets if your wallet is lost or stolen. It’s up to you whether to consider using a recovery phrase back-up service.