Seed Phrases Explained: The Essential Guide to Securing Your Cryptocurrency Wallets

Introduction

There is one crucial element that keeps your coins and tokens safe and secure: the seed phrase. It’s a mainstay of the cryptocurrency industry and for good reasons, which we’ll cover below. This blog post will walk you through the ins and outs of seed phrases, their importance, and how they work to safeguard your digital assets. If you’re looking to understand seed phrases, we’ve got you covered.

Seed phrases play a critical role in the world of cryptocurrency. Seed phrases are acting as a safety net that enables you to recover your software or hardware wallet in case of loss, theft, or damage. Anyone who wants to keep their digital assets secure should understand how seed phrases work. They are crucial for keeping your cryptocurrencies safe in the long term.

In this blog post, we’ll explore the basics of seed phrases, their importance for crypto holders and how they work in wallets to secure your coins. We’ll also cover the best practices for safeguarding your seed phrase and recovering a wallet using a seed phrase.

At the end of this article, you’ll find answers to frequently asked questions surrounding this topic. So, let’s dive into the fascinating world of seed phrases and discover why they’re so crucial for cryptocurrencies.

What is a Seed Phrase?

Definition of a seed phrase

A seed phrase, also known as a mnemonic phrase or recovery phrase, is a sequence of words that acts as a backup for your digital wallet’s private key. The seed phrase is created from a predefined list of words in a specific way. They are also set in a given order and include secret information about the key to your cryptocurrency wallet. You can use the seed phrase to regain access to your wallet and all coins in case of wallet damage or loss.

The role of seed phrases in securing cryptocurrency wallets

Seed phrases serve as a critical security measure for software and hardware wallets. They ensure that users can recover their funds if their wallet becomes inaccessible, lost, or damaged. By securely storing your seed phrase, you maintain full control over your wallet and the cryptocurrencies it holds.

Seed phrases effectively act as a “master key” that can unlock your wallet and grant access to your funds in case your private key is lost or compromised. It is important to note that without the correct seed phrase, you may lose access to your digital assets permanently.

Common types of seed phrases (12, 18, 24 words)

Seed phrases typically come in three main variations, consisting of 12, 18, or 24 words. The length of the seed phrase directly correlates with the level of security it provides. The 12-word seed phrases offer a good enough level of protection and should be safe for at least the next few years.

Longer phrases, especially 24-words long, will be safe for the next 20-50 years. Still, the number of combinations possible with 24-word seed phrases is so big, that they will take decades to crack even with future tech. This might change though, when mass-available quantum computers arrive. In the past the most common type was a 12-word seed phrase, now everyone moved to 24-word phrases.

Regardless of the length, it’s essential to store your seed phrase securely and treat it with the utmost care. The loss or exposure of your seed phrase could lead to the permanent loss of your digital assets or unauthorized access to your wallet.

How Seed Phrases Work

The relationship between seed phrases and private keys

Seed phrases and private keys share a unique relationship. The seed phrase is essentially a human-readable representation of your wallet’s private key. When you create a new digital wallet, a private key is generated, which is then used to derive a corresponding public key and wallet address. The private key is crucial for authorizing transactions, and losing it would mean losing access to your funds.

To make it easier for users to manage and recover their private keys, seed phrases were introduced. By using a seed phrase, you can regenerate your wallet’s private key and regain access to your funds. Even if your original wallet is lost or compromised.

You can read more about this in our Ultimate Guide To Private Keys And Recovery Seed Phrases

Types of seed phrase and standards (BIP39, BIP32, BIP44)

Industry standards play a vital role in generating and using seed phrases. Specifically, Bitcoin Improvement Proposals (BIPs) like BIP39, BIP32, and BIP44 are crucial in this regard.

BIP39 standard

BIP39 is the algorithm responsible for generating the mnemonic phrase from a wallet’s private key. This standard also defines a carefully selected list of 2,048 words used to create the seed phrase.

The BIP39 algorithm takes the wallet’s private key and rewrites it into an easy-to-read seed phrase. It uses a predefined word list, cryptographic algorithms and a secure source of randomness to create your seed phrase. BIP39 is the most commonly used standard for generating seed phrases.

Industry standards for increased security

There are other important standards regarding seed phrases, like BIP32 and BIP44. The BIP32 describes the method of creating Hierarchical Deterministic (HD) wallets, which is used by most wallets on the market. Deterministic wallets allow users to generate many private keys and addresses from a single seed phrase. It enhances privacy because, with it, you can create a new address for each transaction without needing multiple seed phrases. You can also keep many crypto addresses in the same wallet, protected with a single seed phrase.

BIP44 is important because it enables compatibility between different wallets. It describes a method of using the standardized structure for deterministic wallets. This allows users to switch between various wallet providers. In essence, using the same seed phrase and crypto accounts with different wallet brands.

We recommend using wallets compatible with BIP39, BIP32 and BIP44 for security reasons. These standards enable seamless switching between different brands and vendors. It’s essential to keep in mind that not all wallets available on the market implement these standards. You should check this in the technical specification of each wallet. We’ll make a guide into this in the future, in the meantime, you can check our list of BIP39 compatible wallets.

Other types of phrases

As we said earlier, the BIP39 (together with BIP32 and BIP44) is the most commonly used type of seed phrase. There are other types of seed phrases used in specific wallets only. Like Electrum wallet which uses similar seed phrases as BIP39 wallets, but it’s not compatible with them.

Moreover, there are now some hardware and software wallets that don’t use any type of seed phrases at all. Generally speaking, we don’t recommend using wallets that you can’t move to a wallet from a different vendor. A savvy crypto holder should rather play safe and be able to restore their funds if the wallet’s maker goes out of business.

Importance of entropy and randomness in generating seed phrases

Entropy, or randomness, is a crucial component in generating seed phrases. High entropy ensures that each seed phrase is unique and extremely difficult to guess or crack. The more random the seed phrase, the stronger the security it provides.

When creating a seed phrase, random numbers (entropy) are generated, which are then combined with the wallet’s private key. This process ensures that the resulting seed phrase is both unique and secure. To maximize the security of your seed phrase, it is essential to set up the new wallet with a trusted wallet or tool. You should use a wallet or tool with a strong random number generator when setting up your wallet. Check out our BIP39 Seed Phrase Generator

Safeguarding Your Seed Phrase

Best practices for storing seed phrases

To ensure the security of your digital assets, it’s essential to store your seed phrase safely. Here are some good practices to follow:

1. Writing it down on paper (easy but not best): One of the simplest methods is to write down your seed phrase on a piece of paper. This approach keeps your seed phrase offline and away from potential digital threats. Paper backups can be destroyed or lost easily, this is why it’s crucial to store the paper in a secure location, like a safe or a safety deposit box, to protect it from damage or theft.
2. Using metal backups: For an even more durable solution, consider using a metal backup to store your seed phrase. Metal backups are designed to withstand fire, water damage, and other physical threats that could destroy a paper backup. These are heavy-duty metal plates with engraved or stamped letters, ensuring long-lasting protection. One of the best examples of metal backup is Coinplate Alpha – the ultra-durable seed phrase backup.
3. Keeping multiple copies: To minimize the risk of losing access to your wallet, you should create multiple copies of your seed phrases. It’s also important to store them in different secure locations. This strategy ensures that even if one copy is lost or destroyed, you still have a backup available to regain access to your funds.

What to avoid when storing seed phrases

To maintain the security of your seed phrase, it’s essential to avoid certain actions:

1. Storing your seed phrase digitally (e.g., screenshots, hard drive, cloud storage). Keeping your seed phrase on electronic devices exposes it to hackers and unauthorized access. Keeping your seed phrase offline and in a physical format is crucial to prevent these risks. Also, you should never take photos of your seed phrases.
2. Sharing them with others. Never share your seed phrase with anyone. This includes including friends, family, or customer support representatives. Your seed phrase is the key to your digital assets, and sharing it with others could lead to unauthorized access and loss of funds. Always keep your seed phrase private and secure to protect your digital wallet.

Recovering a Digital Wallet with a Seed Phrase

When and why wallet recovery is necessary

You might need to recover your wallet in some situations like when you lose access to your digital wallet or it’s damaged. In these cases, having your seed phrase is crucial for regaining access to your funds and ensuring the security of your digital assets. You will also need your seed phrase when you want to switch to a different wallet or create a backup.

Moreover, most people don’t realize that hardware wallets use pin codes to secure their contents. When you forget the pin code or input the wrong one by mistake, it will lock itself out. If that happens, your wallet will erase all data including your private keys and crypto accounts. That’s why you need a good backup of your seed phrase, even if not planning to keep your coins for the long term.

Step-by-step process for recovering a wallet using a seed phrase

To recover your digital wallet using your seed phrase, follow these steps:

1. Get a new wallet. For software wallets, you should download and install the wallet software. In the case of a hardware wallet, you need to get a new device or clear data on a current one. Make sure that your new wallet is compatible with your seed phrase (e.g., BIP39, BIP32, BIP44 compliant wallets).
2. Select the recovery option. Upon launching the wallet software, look for the “restore wallet,” “recover wallet,” or a similar option. It allows you to recover your wallet using your seed phrase.
3. Enter the seed phrase. Carefully input your seed phrase in the order it was originally presented. Be cautious about potential typos and ensure you input the words in the correct sequence.
4. Set a new password (optional). Depending on the wallet, you might be prompted to set a new password or PIN for added security. Make sure to choose a strong and unique password that you can remember.
5. Verify the wallet address and balance. After finishing the wallet recovery process, check your addresses and balances. It will allow you to ensure everything went well and everything got restored correctly.

Risks and challenges associated with wallet recovery

Wallet recovery using a seed phrase can come with certain risks and challenges, including:

1. Incorrect seed phrase entry. Mistyping or entering words in the wrong order can result in failure to recover your wallet or, in some cases, create a new, empty wallet. If that happens, you can try our BIP39 Recoverer tool, which helps to restore broken seed phrases.
2. Compatibility issues. Ensure that the wallet software you use to recover your wallet is compatible with the seed phrase format (e.g., BIP39, BIP32, BIP44).
3. Security risks. Be cautious when entering your seed phrase during the recovery process. Especially when using a device that might be compromised or in a public setting. Always ensure you’re using a secure and trusted device to minimize the risk of unauthorized access.
4. Loss of seed phrase. Losing your seed phrase altogether can make wallet recovery impossible. Thus, It’s crucial to safeguard it using the best practices outlined earlier in this post and proper backup like Coinplate.

Frequently Asked Questions about Seed Phrases

1. Can I use my seed phrase with multiple wallets?

Yes, you can use your seed phrase with multiple wallets as long as they are compatible with the same seed phrase standards (e.g., BIP39, BIP32, BIP44). This enables users to have the same wallet on different devices. Plus it allows switching to different wallet providers without losing access to digital assets.

2. What if I lose my seed phrase?

If you lose your seed phrase, you may be unable to recover your digital wallet and access your cryptocurrency holdings. This highlights the importance of storing your seed phrase using the best practices mentioned earlier in this post. If you suspect that your seed phrase has been compromised, you shoudl move your funds to a new wallet with a different seed phrase as soon as possible.

3. Can I change my seed phrase?

Seed phrases are generated using cryptographic algorithms and are directly tied to your private keys. As a result, you cannot change your seed phrase for an existing wallet. If you want a new seed phrase, you will need to create a new wallet and transfer your funds to the new wallet. Remember to securely store the new seed phrase and dispose of the old one carefully.

4. How secure is my seed phrase?

Seed phrases are designed to be secure and resistant to brute-force attacks. It is extremely difficult, if not impossible, for an attacker to guess or hack your seed phrase. Special cryptographic algorithms paired with entropy and randomness make this practically impossible.

However, the security of your seed phrase ultimately depends on how well you safeguard it. Storing your seed phrase securely and offline, avoiding digital storage, and not sharing it with others are crucial steps in maintaining the security of your digital assets.

Conclusion

Anyone using Bitcoin (or other cryptocurrencies) should understand the basics of seed phrases. Seed phrases play a critical role in securing digital wallets and ensuring that users can recover their wallets if needed. By having a clear grasp of the concept of seed phrases, you can manage your digital assets and mitigate potential risks.

We strongly encourage readers to follow the best practices for seed phrase security discussed in this blog post. You can significantly reduce the chances of losing access to your digital assets with a few simple steps we covered in the article. Storing your seed phrase securely, using reliable backup methods, and keeping multiple copies, will make you sleep well . Always focus on your seed phrase security and take necessary precautions to protect your investments.