Understanding BIP39: Mnemonic Phrases and Secure Cryptocurrency Wallets

Introduction

Background on BIP39 (Bitcoin Improvement Proposal 39)

As the world of cryptocurrency continues to expand, securing digital assets has become a critical concern for users. One of the most important developments in this area is BIP39, or Bitcoin Improvement Proposal 39. Introduced in 2013 by developers Marek Palatinus, Pavol Rusnak, Aaron Voisine, and Sean Bowe, BIP39 is a widely-adopted industry standard. It provides a more user-friendly and secure method for generating and storing private keys. BIP39’s primary innovation is the introduction of mnemonic phrases. They allow users to easily access and recover their cryptocurrency wallets.

Importance of mnemonic phrases in cryptocurrency wallets

Mnemonic phrases are critical for maintaining the security and usability of cryptocurrency wallets. They serve as a human-readable representation of private keys, which control access to a user’s digital assets. As such, mnemonic phrases act as a crucial backup and recovery mechanism. Enabling users to regain access to their funds in case of device failure or loss. Furthermore, mnemonic phrases make it easier for non-technical users to engage with cryptocurrencies. As they are simpler to remember and manage compared to traditional private keys.

By the end of this article, you will have a better understanding of how BIP39 works and how to use it effectively. Together with the best practices for managing and storing your mnemonic phrases. Armed with this knowledge, you can take steps to ensure the safety of your digital assets. You can also make more informed decisions when choosing a cryptocurrency wallet.

The Role of Mnemonic Phrases in Cryptocurrency Wallets

Definition of a mnemonic phrase

A mnemonic phrase, also known as a seed phrase or recovery phrase, is a sequence of words used to store the private key of a cryptocurrency wallet. Typically 12, 18, or 24 words long, mnemonic phrases are generated using a predefined dictionary of words (see BIP39 wordlist). The words are selected in a specific order, based on a random number (entropy), which ensures that each phrase is unique and secure.

Example of BIP39 mnemonic phrase with 12 words:
glory remain shrug expand feed they notice similar diagram acquire hour razor

The purpose of mnemonic phrases

Mnemonic phrases serve several essential functions in the world of cryptocurrency wallets:

1. Backup and recovery: Mnemonic phrases act as a backup for the private key of a wallet, allowing users to recover their funds in case of device loss or failure. By entering the correct mnemonic phrase, a user can restore access to their wallet and regain control of their digital assets.
2. Wallet migration: When switching to a new wallet or device, a mnemonic phrase can be used to transfer the wallet’s private key and associated assets. It ensures a smooth transition without the need for cumbersome manual processes.
3. Human readability: Mnemonic phrases are designed to be easily understood and remembered by humans. Which makes them more accessible than traditional private keys. Private keys are long strings of alphanumeric characters.

How mnemonic phrases improve security and usability

Mnemonic phrases enhance the security and usability of cryptocurrency wallets in several ways:

• Error detection: BIP39 incorporates a checksum in the mnemonic phrase generation process. Which helps to detect errors when entering or transcribing the phrase. This ensures that users are less likely to lose access to their wallets due to simple mistakes.
• Multi-language support: BIP39 supports multiple languages. Allowing users from different backgrounds to create and use mnemonic phrases in their native language. This fosters greater inclusivity and accessibility in the cryptocurrency space. However, we recommend sticking with the English word list for security.
• Simplified key management: By representing private keys as mnemonic phrases, users can more easily manage their wallet access. That’s because they only need to remember a sequence of words rather than a complex string of characters. This ultimately reduces the risk of losing access to digital assets due to forgotten or misplaced private keys.

Further read: our Ultimate guide to private keys and recovery seed phrases.

An Overview of BIP39

The motivation behind the proposal

The primary motivation behind BIP39 was to address the challenges and limitations of private key management in cryptocurrency wallets. Traditional private keys, represented as long alphanumeric strings, are difficult for users to remember and manage. Moreover, they can be easily lost or compromised, putting users’ digital assets at risk. BIP39 aimed to provide a more user-friendly and secure approach to private key generation and storage while maintaining compatibility with existing wallet infrastructure and standards.

Main features and components of BIP39

BIP39 introduces several key features and components to enhance the usability and security of mnemonic phrases:

1. Mnemonic phrase generation: BIP39 utilizes a deterministic algorithm to generate mnemonic phrases, based on a source of entropy (randomness). The algorithm selects words from a predefined dictionary, ensuring that the resulting phrase is both unique and secure. Depending on the desired level of security, users can choose between 12, 18, or 24-word phrases, which correspond to varying levels of entropy.
2. Mnemonic-to-seed conversion: To facilitate compatibility with existing wallet standards, BIP39 provides a process for converting mnemonic phrases into a wallet seed. The wallet seed, derived from the mnemonic phrase through a key-stretching function (PBKDF2), is used to generate private keys and addresses in a hierarchical deterministic (HD) wallet, following the BIP32 standard.
3. Multi-language support: BIP39 is designed to support multiple languages, allowing users from diverse linguistic backgrounds to create and use mnemonic phrases in their native language. Each language has its own predefined dictionary, with words carefully selected to minimize the risk of confusion or error when entering or transcribing the phrase.

Features of BIP39 wordlist:

•  smart selection of words – the wordlist is created in such a way that it’s enough to type the first four letters to unambiguously identify the word
• similar words avoided – word pairs like “build” and “built”, “woman” and “women”, or “quick” and “quickly” not only make remembering the sentence difficult but are also more error prone and more difficult to guess
• sorted wordlists – the wordlist is sorted which allows for more efficient lookup of the code words (i.e. implementations can use binary search instead of linear search) – this also allows trie (a prefix tree) to be used, e.g. for better compression

Source

Comparison with other mnemonic phrase generation methods

Prior to BIP39, other methods for generating mnemonic phrases existed, such as Electrum’s seed phrases. While these methods also tried to improve private key management, they often lacked some of the benefits provided by BIP39. For example, Electrum’s seed phrases use a different wordlist and do not incorporate a checksum for error detection. BIP39’s compatibility with the BIP32 standard for deterministic wallets makes it even more versatile. As a result, BIP39 has become the standard for mnemonic phrases in the cryptocurrency industry.

How BIP39 Enhances Wallet Security

The role of entropy in generating mnemonic phrases

Entropy plays a crucial role in the security of BIP39 mnemonic phrases. It refers to the randomness used as the basis for generating a mnemonic phrase. The higher the entropy, the more secure and unpredictable the resulting phrase will be. In BIP39, users can choose between 128, 192, or 256 bits of entropy, which correspond to 12, 18, or 24-word mnemonic phrases, respectively.

The benefits of error detection through the checksum

BIP39 incorporates a checksum into the mnemonic phrase to improve error detection. A checksum is a small piece of data derived from the original entropy that is appended to the mnemonic phrase. When a user enters or transcribes their mnemonic phrase, the checksum is recalculated and compared to the original value. If there is a mismatch, it indicates an error in the input. This prevents users from accidentally accessing the wrong wallet or losing access to their funds due to simple mistakes.

Want to calculate the checksum for your seed phrase yourself? Try out our free tool: BIP39 Recoverer. It also allows you to find missing words in your mnemonic phrase.

The optional passphrase for additional protection

BIP39 allows users to add an optional passphrase to their mnemonic phrase for an extra layer of security. This feature essentially creates a hidden wallet. Which can only be accessed by providing both the mnemonic phrase and the correct passphrase. In case of a physical theft of the mnemonic phrase, the attacker would still need the passphrase to access the funds. This provides an extra layer of protection for the user. When a passphrase is used, it is combined with the mnemonic phrase during the seed generation process, which results in a different seed.

Recovery and wallet migration using BIP39 mnemonic phrases

BIP39 mnemonic phrases enable users to recover their wallet and migrate it to a new wallet. When the user enters the seed phrase into the new wallet, the private keys and addresses are derived from it.

This feature not only ensures that users can easily recover their wallets in case of device loss or failure. But it also facilitates seamless transitions between different wallets and providers. Further enhancing overall wallet security and usability.

BIP39-Compatible Wallets and Implementations

Hardware wallets

Hardware wallets are physical devices designed to securely store private keys and sign transactions offline. Many popular hardware wallets, such as Ledger Nano S/X, Trezor One/T, and KeepKey, support BIP39 mnemonic phrases. These wallets provide an excellent combination of security and usability. As they keep private keys isolated from internet-connected devices. It reduces the risk of hacking or theft. See the full list of BIP39 compatible hardware wallets.

Software wallets

Software wallets are applications that store private keys on a user’s computer or mobile device. They also allow users to manage their coins and make transfers. Numerous software wallets, including Mycelium, and Exodus, have adopted BIP39. By using a BIP39-compatible software wallet, users can enjoy the benefits of mnemonic phrase-based key management while maintaining control over their private keys.Check out the full list of BIP39 compatible software wallets.

Paper wallets

Paper wallets are a form of cold storage in which private keys or mnemonic phrases are printed on a physical medium, such as paper or metal. Although less common today due to the rise of hardware wallets, paper wallets can still be generated using BIP39 mnemonic phrases. By creating a paper wallet with a BIP39-compatible mnemonic phrase, users can store their private keys offline in a physical format, reducing the risk of hacking or theft while maintaining the ability to recover their wallet using the mnemonic phrase.

Third-party BIP39 tools

Several third-party tools have been developed to help users generate, verify, and manage BIP39 mnemonic phrases. Tools such as Ian Coleman’s BIP39 Tool or our own BIP39 Seed Phrase Generator enable users to create mnemonic phrases and derive wallet seeds, addresses, and private keys offline. While these tools can be useful, it is important to exercise caution when using them to ensure that your mnemonic phrase and private keys remain secure. Always use such tools on an offline, air-gapped device, and verify the authenticity of the software before use.

Best Practices for Storing and Managing Mnemonic Phrases

Proper storage of mnemonic phrases

Proper storage of mnemonic phrases is essential for maintaining the security of your cryptocurrency wallet. Here are some recommendations for securely storing your mnemonic phrase:

• Avoid storing your mnemonic phrase electronically, as this can expose it to hacking, theft, or data loss.
• Consider writing down or engraving your mnemonic phrase on a durable, non-corrosive material, such as paper or metal, to prevent damage or degradation over time.
• Store your mnemonic phrase in a safe and secure location, such as a safe deposit box, fireproof safe, or other tamper-resistant storage solution.
• Create multiple copies of your mnemonic phrase and store them in separate, secure locations to minimize the risk of loss or damage.

You can use ultra durable seed phrase storage solutions like Coinplate Alpha to secure your your mnemonic phrase for years.

Tips for remembering mnemonic phrases

Remembering a mnemonic phrase can be challenging, especially for non-technical users. Here are some tips to help you remember your mnemonic phrase:

• Create a memorable story or mental image that incorporates the words in your mnemonic phrase. This can make it easier to recall the sequence of words.
• Practice reciting your mnemonic phrase regularly to reinforce your memory.
• Consider using a memory technique, such as the Method of Loci or the Major System, to associate the words in your mnemonic phrase with familiar objects or concepts.

Please note that remembering seed phrases reliably is not easy and is not recommended for most people.

When to consider using a passphrase

Adding a passphrase to your mnemonic phrase can provide an extra layer of security, but it also increases the complexity of managing your wallet. Consider using a passphrase in the following situations:

• You have a large amount of cryptocurrency or other digital assets that require heightened security.
• You are concerned about the physical theft of your mnemonic phrase or the possibility of someone discovering it.
• You want to create a hidden wallet for additional privacy or security.

Keep in mind that if you use a passphrase, you must remember it in addition to your mnemonic phrase. Losing or forgetting your passphrase can result in the permanent loss of access to your wallet.

The importance of regular wallet backups

Regularly backing up your wallet is essential for ensuring the safety of your digital assets. Make sure to:

• Keep your mnemonic phrase and any associated passphrase securely backed up and stored in multiple locations.
• Update your wallet backups whenever you create new addresses or accounts, as these may not be covered by your existing mnemonic phrase.
• Test your wallet recovery process periodically to ensure that you can successfully regain access to your wallet using your mnemonic phrase and passphrase (if applicable).

Potential Drawbacks and Criticisms of BIP39

Issues related to centralization

One criticism of BIP39 is that it relies on a predefined dictionary of words, which could be seen as a form of centralization. The use of a fixed wordlist means that the security of mnemonic phrases depends on the integrity and quality of the dictionary. Additionally, the standardization of wordlists for different languages might limit the ability of users to create custom or localized mnemonic phrases, potentially reducing the inclusivity and flexibility of the BIP39 standard.

Possible security concerns

While BIP39 improves the usability and security of private key management in many ways, it is not without potential security concerns:

• Human error: Mnemonic phrases are susceptible to human error, such as misremembering or mistyping words, which could result in lost access to a wallet or funds.
• Physical security: Storing mnemonic phrases physically, such as on paper or metal, can expose them to theft, damage, or loss, especially if proper security precautions are not taken.
• Passphrase complexity: The optional passphrase feature adds an extra layer of security but also introduces the risk of users forgetting or losing their passphrase, leading to the permanent loss of wallet access.

The trade-offs between usability and security

BIP39 aims to balance usability and security, but some trade-offs must be considered:

• Mnemonic phrase length: Shorter mnemonic phrases (12 words) are easier to remember but provide a lower level of security compared to longer phrases (24 words). Users must balance the convenience of shorter phrases with the increased security of longer ones.
• Multi-language support: While BIP39’s support for multiple languages makes it more accessible, it can also introduce potential confusion or errors when entering or transcribing mnemonic phrases. Users must exercise caution when using non-English wordlists or switching between languages.
• Third-party tools: BIP39-compatible tools can help users manage their mnemonic phrases but also expose them to potential security risks if the tools are not used properly or if their authenticity is not verified.

Ultimately, BIP39 offers significant improvements in usability and security for cryptocurrency wallet management. However, users must carefully consider the potential drawbacks and trade-offs when adopting and using BIP39 mnemonic phrases.

Conclusion

BIP39 (Bitcoin Improvement Proposal 39) has played a crucial role in enhancing wallet security and usability by introducing mnemonic phrases for private key management. By providing a standardized method for generating mnemonic phrases, converting them to wallet seeds, and offering multi-language support, BIP39 has made it easier and more secure for users to store and manage their cryptocurrency wallets.

Given the numerous benefits of BIP39, we encourage everyone to consider using BIP39-compatible wallets for their cryptocurrency storage needs. These wallets provide a more user-friendly and secure way to manage private keys, while also offering advanced features such as error detection, optional passphrases, and seamless wallet recovery and migration. By adopting BIP39-compatible wallets, users can enjoy greater peace of mind and convenience in managing their digital assets. Just be sure to protect your seed phrase with a proper backup solution like Coinplate.

As the world of cryptocurrencies continues to evolve, it is essential for users to stay informed about the latest wallet security practices and technologies. We encourage readers to continue researching and learning about wallet security, including emerging standards and proposals beyond BIP39. By staying up-to-date on wallet security advancements, users can make informed decisions and ensure the safety of their digital assets.