Meaning and importance of a seed phrase explained
A seed phrase (also known as a wallet recovery phrase, mnemonic phrase or cryptocurrency seed phrase) is a series of 12 to 24 words generated by your cryptocurrency wallet.
Why is the seed phrase important? These words are used to derive your private keys, allowing access to your cryptocurrency holdings. The importance of a seed phrase cannot be overstated — it is essentially the key to your digital fortune.
In simple terms, a seed phrase is a human-readable backup of your private keys, the cryptographic keys controlling your wallet and its contents. If you lose access to your wallet — whether through a lost device or forgotten password — you can recover your crypto wallet by entering your seed phrase into a compatible wallet app. Regaining access is almost impossible without it, and you risk losing your funds.
For example, in 2013, James Howells threw away a hard drive containing the private keys to his Bitcoin wallet. The wallet held about 8,000 Bitcoin (BTC), worth $859.7 million as of Dec. 16. Without his Bitcoin seed phrase, he could not recover his assets, which were lost in a landfill. This underscores why it’s critical to secure your seed phrase.
A brief history of seed phrases
Hierarchical deterministic (HD) wallets introduced the concept of seed phrases in 2012. Before that, wallets weren’t very user-friendly and managing private keys was a bit of a hassle.
HD wallets made generating and backing up your private keys easier by introducing seed phrases. Since then, the seed phrase has become integral to the cryptocurrency world.
How seed phrases work
Seed phrases enable users to easily and securely back up private keys and manage their digital assets.
When you create a wallet, it generates a seed phrase through BIP-39 (Bitcoin Improvement Proposal 39), which starts with a random number that is then mapped to words from a predefined wordlist.
These words are chosen to provide a high degree of randomness for cryptographic purposes yet can be easily remembered.
Once generated, this seed phrase is your blueprint; it allows you to regenerate your private keys — the cryptographic keys that control your cryptocurrency. For example, your seed phrase might look something like this:
castle ginger apple mystery spider clock mountain sky ocean
Each word helps make up your private key, allowing access to your wallet. But what makes seed phrases a unique concept?
The beauty of a seed phrase is that it’s deterministic, meaning that you can always restore your wallet and access your funds no matter where you enter it, whether a new device or wallet application. It’s similar to having a digital key in your vault that works anywhere.
How do seed phrases, private keys, and wallet addresses relate?
Think of your cryptocurrency wallet as a safe where your private keys and wallet address are stored. In essence, seed phrases, private keys and wallet addresses make up your crypto wallet.
Let’s understand how they interact with private keys and wallet addresses:
- Seed phrase: These are the human-readable backups of your private keys that enable you to recover your crypto wallet in case of loss.
- Private keys: Your seed phrase generates your private keys; your wallet is controlled by these cryptographic keys that allow you to sign transactions. Without these keys, you can’t move your crypto. Think of them as the actual keys to your digital safe.
- Wallet addresses: These are the public identifiers derived from your private keys that others use to send you cryptocurrency. For example, when someone wants to send you Bitcoin, they need your wallet address.
Did you know? While deriving the public key from the private key is computationally straightforward, the reverse operation — inferring the private key from the public key — is virtually impossible due to the inherent complexity of the cryptographic algorithm.
Can a seed phrase be hacked?
Technically, a seed phrase cannot be hacked directly because it’s a series of words that only unlocks a wallet when entered in the correct order.
Still, if your seed phrase is exposed to a hacker — through malicious software, phishing scams or improper storage — they can use it to access and control your cryptocurrency wallet.
Here are the ways a seed phrase could be compromised:
- Phishing attacks: Hackers can trick you into entering your seed phrase on a fake website or app.
- Insecure backups: Storing your seed phrase in easily accessible or online locations (like cloud storage or unencrypted text files) makes it vulnerable to hacking.
- Malware: If your device gets infected with malware, it might log your keystrokes or access files where your seed phrase is stored.
- Social engineering: Hackers might attempt to gain your trust and convince you to share your seed phrase under false pretenses, claiming they need it for support or troubleshooting.
What happens if you lose a seed phrase?
Unfortunately, once the seed phrase is lost and no backups are available, there is no way to recover the wallet and the funds are considered lost forever.
Let’s dive deeper into the potential consequences of losing your seed phrase and how third-party services might help in some cases.
- No recovery in case of non-custodial wallets: Non-custodial wallets like MetaMask don’t store any information for you. If you lose your seed phrase, you lose access to the wallet and there’s no way to recover it. This means you cannot regenerate your private keys, meaning you cannot access or recover your funds.
- Possibility of recovery through a provider in case of custodial wallets: In custodial wallets, a third-party provider (like Coinbase or Binance) holds control over your private keys. In the event you lose your seed phrase, the provider may help you recover your wallet using account credentials, email recovery or other forms of authentication. However, don’t forget: “Not your keys, not your crypto.”
- Third-party wallet recovery services: Some specialized third-party services may assist in wallet recovery. These services don’t usually recover wallets without seed phrases, but they can sometimes help with key recovery if you’ve backed up your seed phrase or private keys incorrectly. Many of these services are scam-prone, so remember to thoroughly test their genuineness.
How to safely store and back up your seed phrase
Storing your wallet recovery phrase offline (e.g., in a hardware wallet) or at multiple locations are ways to safely store and back up your seed phrase.
Here are some tips to ensure your cryptocurrency wallet security:
- Offline storage: Internet-connected devices expose your seed phrases to cyber threats, so store them as physical copies in a safe deposit box or fireproof safe or write them down on paper. The risks of online attacks can also be reduced by using hardware wallets. Still, these are commercialized devices whose security depends upon the measures taken by wallet providers.
- Multisignature wallets: A multisignature wallet requires multiple private keys (and, therefore, multiple seed phrases) to authorize a transaction. For example, you could store your seed phrase in multiple locations, and to perform any action (like sending crypto), you would need access to at least two or three of them, adding a level of redundancy and making it significantly harder for someone to access your wallet with just one stolen backup of your seed phrase.
- Geographical separation of backups: The risk of losing funds is further reduced by keeping your seed phrases in separate locations, such as a personal safe, a safety deposit box in a different city or country, or entrusting a trusted individual with a copy. This redundancy ensures access to your funds even in unforeseen circumstances or emergencies.
- Regularly test and update your backups: After safely storing your seed phrase, periodically review and update your backups. Documents might deteriorate over time, and you might discover that your backup is unreadable. To ensure everything is working properly, test your recovery process regularly by recovering your wallet from the seed phrase. Additionally, update your backups to reflect any changes if you replace your wallet or devices.
- Be cautious about sharing your recovery phrase: Never share your seed phrase with someone you don’t trust completely. If you are using a hardware wallet, not even the wallet provider should know it. Similarly, customer service representatives of legitimate products and services will never ask for your seed phrase. Thus, be careful, as phishing attacks can mimic wallet interfaces, tricking you into entering your seed phrase on malicious websites or apps.
Each method provides layers of security but also comes with trade-offs regarding convenience and risk management. Therefore, it’s important for you to do your research before choosing a method that suits your needs.