What is a seed phrase in crypto

What is a seed phrase?

Crypto is full of strange words and phrases that are hard to understand. Especially for those who have never encountered them. For example, seed phrase (or backup phrase, recovery phrase, mnemonic sentence). It is a mnemonic code consisting of 12–24 words, which is used to restore access to a cryptocurrency wallet. It is essentially a coded identifier for your wallet in the digital universe.

When choosing your cryptocurrency wallet, you can select how the seed phrase is generated. It must be completely randomly chosen. Then it cannot be guessed or changed. Accordingly, the more words there are, the harder it is to guess the whole phrase.

The user can either generate the phrase randomly in the wallet itself or do it through some apps or services (but with this approach, you have to be very careful not to run into phishing sites).

However, it is worth remembering that private keys and seed phrases are not the same things. Although, it is necessary to protect both of them carefully. Otherwise, the fraudsters will leave you without your savings when they get access to them.

Why your seed phrase is important

Let’s state right away that the seed phrase is critically important. And here’s why:

• it is the main key to your cryptocurrency wallet (here, we wrote about different types of crypto wallets, their pros, and cons);
• it would help if you had it to restore access to the crypto and all your savings in it. If your phone was lost, your computer died, or your hardware wallet broke, the seed phrase will allow you to create a new wallet and restore full access to your crypto.

Cryptocurrency can make you rich one day, and with money comes serious responsibility. You have to be careful about the security of your savings. By accessing your passphrase, anyone can make a copy of your wallet and steal all your funds. That’s because the seed phrase gives you access to private keys.

A private key is needed for all transactions because it is used to prove ownership of an address in the blockchain. Anyone can make a transaction, but to confirm their request for the transferred cryptocurrency, they must enter the private key. That’s why all data must be strictly protected.

One of the most common backup phrase theft schemes is when a scammer introduces himself as a company representative where you have a crypto-purse and asks you to confirm your ownership by providing a passphrase. It is the same as if you are asked for a PIN of a bank card. This information should not be given to anyone under any circumstances! You must be the only person who knows the mnemonic phrase to access your crypto assets. Here we have compiled the best places and ways to store the seed phrase.

How does a seed phrase work?

The recovery phrase to access a crypto wallet is usually generated right when you create your wallet (or you can use a third-party service). Usually, a long string of random words is needed to create your wallet’s private keys.

Even though such a phrase is still called a mnemonic sentence, you should not rely only on your memory when storing it. 

What are the best ways?

Each recovery phrase is taken from a list. It consists of the 2,048 most common and easy-to-remember words. The use of seed phrases became popular in 2013 after the bitcoin improvement proposal. That’s when a new standard for “deterministic wallet” (i.e., definable) was introduced. Most modern crypto wallets are like this. In them, the seed phrase controls access to the private keys in the wallet.

The new standard added compatibility for different wallets. If you need to start a new one, all you have to do is enter a passphrase, and the cryptocurrency from the old wallet will also be available there. The seed phrase will also allow you to get your digital savings back if your wallet has been lost or accidentally deleted.

Therefore, the recovery phrase should be carefully guarded (to the point that it should not be uttered aloud).

How can you store a recovery phrase safely?

There are a large number of techniques that depend on the amount of cryptocurrency and personal preference. That is, what you value more: simplicity or security.

The easiest way is to divide the phrase into several parts and store it in different safes, for example. And in doing so, you must remember to have backups if something happens to one of the storage places. If it’s paper, it’s better to laminate it. Some use strong materials (titanium, for example) to engrave a phrase on it.

Also, some crypto wallets have a feature to back up your recovery phrase to Google Drive or iCloud. In this case, your seed phrase will be placed in the cloud in encrypted form.

Remember that your cryptocurrency is always there as long as you remember and hide your seed phrase. And it will be with you, even if you drown your phone with the software wallet or lose the hardware.

Are there other options if I’d prefer not to manage my recovery phrase?

Of course, there are options. If you buy crypto on Coinbase, you don’t need to immediately transfer it to a separate wallet. Savings can be stored on Coinbase in a hosted wallet. If your savings value is high enough, you will begin to think about their safety sooner or later. In this case, you can transfer some of your digital funds from your main account to Coinbase Vault. In this vault, the level of security is higher, and the user does not need to bother with a passphrase or personal keys. Funds from Coinbase Vault can also be transferred back to the main account.

What’s the difference between a seed phrase and a private key?

Private keys allow you to send or spend various cryptocurrencies. And your recovery phrase gives you access to your wallet and its private keys. Therefore, a cryptocurrency wallet is more like a password manager, where the master password is the seed phrase that gives access to all cryptocurrencies in the account.

How to generate a seed phrase: five possible ways

1. Calculator. This can be done without having the internet, which eliminates hacking attacks. It would be best if you had an ordinary calculator (a mobile or PC version will also do), but it should have the RANDOM function. Then you need to use it as a random number generator along with a list of words BIP39 (exactly 2,048 we wrote about above).
2. Dice. You need regular dice, paper, a pen, and a BIP39. It is best to use several dice. This way, a large number will fall out at random.
3. Crypto wallet. Most modern wallets allow you to create a passphrase automatically – as soon as you create an account.
4. Hardware wallets give a higher level of security than software wallets. They often also have an internal seed phrase generation mechanism. However, they don’t come cheap. The most popular brands are Ledger, Trezor, KeepKey, ColdCard, and BitBox. 
5. Software wallets. It can also store digital assets and seed phrases to access cryptocurrency, and they know how to generate a seed phrase. Popular applications include BitGo, Edge, Prokey, Exodus, Rainbow, and so on.

The best way, of course, is to generate backup phrases yourself and offline. This will be the safest option.