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The unreal rise of cryptocurrencies would be one of the significant milestones in the history of technology. Bitcoin spelled the beginnings of a massive revolution that has transformed financial services, systems, and processes. Following the footsteps of Bitcoin, many new cryptocurrencies arrived on the market. At the same time, the development of crypto exchanges and wallets enabled better access to cryptocurrencies.
If you are seeking knowledge about cryptocurrencies, you must know the answer to “what is seed phrase” before using crypto. The seed phrase is the master key to your crypto funds in a wallet, and you are responsible for its safety. The following post offers a detailed guide on seed phrases alongside answers to important questions about their working, security, and uses.
Why Do You Need a Seed Phrase?
The easiest way to understand the definition of seed phrase in crypto would be to reflect on how crypto wallets work. Cryptocurrencies introduced the concept of a peer-to-peer cash system, enabling users to control their digital assets. Crypto users do not have to depend on third-party or centralized entities for managing their funds, like a bank.
On the contrary, cryptocurrencies enable users to store and manage their money according to their discretion. At the same time, you must also note the factor of anonymity in crypto transactions. Users can access their crypto wallets by using the private key, which confirms their address. There are many types of crypto wallets, such as web-based or hardware wallets.
However, you may lose access to crypto wallets for various reasons. For example, you lost the hardware wallet in an accident, or the computer on which you accessed your online crypto wallet crashed. How can you ensure crypto wallet password recovery in such cases? The answer would guide you toward the seed phrase. You need the seed phrase for restoring access to your crypto wallet and the funds in it on another device. That speaks a lot about the significance of the seed phrase for cryptocurrency owners. Now, let us find out what your seed phrase actually is.
Definition of a Seed Phrase
The seed phrase is a collection of random words, which are generated by a crypto wallet upon setup. It serves as the emergency backup for recovering access to funds in cases where you lose access to the crypto wallet. The importance of seed phrase in restoring access to lost crypto funds generally leads to confusion with private keys.
Private keys are combinations of numbers and alphabets, which help users in executing transactions from their crypto wallets. While the security of private keys and the seed phrase share equal priorities for crypto owners, they have completely different functions. Any individual with access to your private key or seed phrase is most likely to compromise the funds in your wallet.
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Working of Seed Phrase
The definition of the seed phrase creates interest in how it works in practice. Crypto wallets work in a different way than the physical wallets you carry for storing cash and cards. Unlike cash, you would not find cryptocurrencies in a crypto wallet application. On the contrary, cryptocurrencies are stored in the form of code on the blockchain. The wallet serves as a bridge between you and your cryptocurrencies on the blockchain. Therefore, you would still have records of your funds safe on the blockchain in event of losing access to your wallet.
The working of seed phrase in crypto wallets is similar to recovery software. Seed phrases are created at the time of setting up a crypto wallet, irrespective of the type of wallet. The distinct highlight of seed phrases is that they are a sequence of 12 or 24 words arranged in random order. The words in the seed phrase come from a collection of 2048 English words, referred to as the BIP39 standard.
Many popular crypto wallets use the BIP39 standard for ensuring 128-bit encryption. The seed phrase exercises control over the private keys related to a deterministic wallet. Interestingly, the BIP39 standard also ensures cross-compatibility between major wallets. As a result, you could use the recovery phrase on a new BIP39 crypto wallet for accessing crypto funds from lost wallets.
The working of a seed phrase example also reflects how the words in a seed phrase associate directly with a string of random numbers. The string is known as the ‘seed’ and could help in generating the user’s private master key. You can use the private master key to generate the other private keys of the user. Crypto wallet owners could find the option for recovering a wallet by using their seed phrase in the wallet settings. However, it is important to enter the words in the exact order they were generated.
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The Appearance of a Seed Phrase
The next important highlight in an introduction to seed phrases would focus on their appearance. How does the seed phrase word list help in creating a specific recovery phrase for your wallet? You can find a seed phrase as a combination of 12 or 24 words from the BIP39 word list. The words in a seed phrase could include common terms such as Open, Never, Wolf, Difficult, Again, Impulse and Bench. How do you generate the seed phrase? As a matter of fact, human beings could be quite notorious for achieving true randomization of words. Therefore, you need to rely on the seed phrase generator of the wallet itself. You can find an example of a 12-word seed phrase as follows.
Sector Bench Avocado Granted
Beach Grail Again Citizen
Level Pillow Western Purpose
How Is the Seed Phrase Different from Private Keys?
Irrespective of the close ties between private keys and seed phrase in cryptocurrencies, they are distinct terms. The private key is an important requirement for crypto transactions as it helps in the verification of ownership of a specific address on the blockchain network. You can receive cryptocurrency funds from anyone on the public key of your wallet. However, you would need the private key to prove your ownership of cryptocurrency funds received in the transaction.
On the other hand, the seed phrase works as your crypto wallet password recovery tool. It is a master key for all the crypto accounts and transactions of users on a wallet. The seed phrase offers access to all private keys in the original wallet, with the objective of ensuring complete control over crypto assets.
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Where Can You Use the Seed Phrase?
The discussions on seed phrases would also draw attention to their potential applications. Most people are worried about the use of the seed phrase every time they access their crypto wallets. On the contrary, you don’t need the seed phrase to access your wallet. Instead, you would use a PIN code set for the crypto wallet application.
The importance of seed phrase lies in enabling comprehensive functionalities for managing your crypto assets. You would need the seed phrase only when you have to restore your crypto wallet without any other credentials. The most appealing highlight of the seed phrase is that you can use it for specific cases only. Here are some of the potential use cases where you might have to use your recovery phrase.
Generating a Crypto Wallet
First of all, you would come across the need to learn “what is seed phrase” while generating or setting up a wallet. For example, you could create a Bitcoin wallet for storing crypto assets in a hardware, mobile, or desktop wallet. During the setup phase, you would receive a prompt for the seed phrase, comprising 12 words or 24 words, arranged in a specific order. Note down the seed phrase and have a backup of the seed phrase stored somewhere secure.
Switching a Wallet
Crypto owners can also face the need to switch their crypto wallet to another device or application. Imagine that you have configured a crypto wallet in an app on your smartphone, and you need to access your crypto funds from a desktop urgently. You can use your seed phrase to access your crypto wallet on another device of your choice.
Restoring a Wallet
The primary highlight in every seed phrase example and guide would focus on its capabilities for recovering crypto wallets. Some crypto owners could accidentally delete the crypto wallet application from their devices. On the other hand, you always have the risk of theft or damage of hardware wallets or devices on which you access your crypto wallets.
Upon deleting the crypto wallet application, you can access your funds by using the seed phrase. Similarly, you don’t have to panic if you lose your computer or phone on which you accessed the crypto wallet. All you need to do is use your seed phrase and restore the crypto wallet on another device.
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What Is The Best Way to Store Your Seed Phrase?
You know the significance of your seed phrase, how it works, and how easy it looks. However, a sequence of 12 or 24 words is not something you would risk completely to your brain’s memory. If you have a sharp memory and can memorize the seed phrase word list in the exact order, then you could rely on the conventional ‘brainwallet’. However, you cannot gauge the weight of consequences if you forget the seed phrase. Remember that it is your last option when every other option for backup fails. Here are some of the effective methods you can rely on for storing your seed phrase or recovery phrase.
The most common method for storing your seed phrase is to use a piece of paper for writing down the recovery phrase. At the same time, you should also note the multiple risks associated with storing your seed phrase on paper. For example, paper is highly vulnerable to damage or theft. As a matter of fact, you could find a piece of paper for noting down the recovery phrase with certain hardware wallets.
Experts have suggested that noting down the phrase created through a seed phrase generator in a wallet is easier and paper. Most important of all, you can avoid the unnecessary complexities of storing your seed phrase with paper as long as you take care of the security of the paper itself.
Another common choice for storing seed phrases in crypto wallets would refer to engraving on metal. It is a comparatively new backup option with the assurance of better longevity in comparison to paper. However, metal cards could also accompany the risks of theft and damage in extreme circumstances.
Considering the risks associated with different methods for storing seed phrases, it is reasonable to assume that you don’t have a “perfect” way for storing your recovery phrase. On the contrary, it is important for crypto owners to focus on the security of their seed phrase by following the necessary best practices.
Best Practices for Securing Your Seed Phrase
The design of the seed phrase makes it impossible for hackers to guess the exact combination of words in it. However, malicious agents could use phishing as a tool for stealing your seed phrase. At the same time, your seed phrase is not safe in online password vaults, as they have been subject to attacks. Therefore, you need to abide by the following best practices for securing your seed phrase –
- Never share your seed phrase with anyone else.
- Do not send your seed phrase to yourself or any friend through email or other digital communication channels.
- Do not take a picture of the recovery phrase.
- Never store your seed phrase in a password manager or vault, which requires an internet connection for usability.
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The introduction to the seed phrase offers a comprehensive explanation of its definition and working. A seed phrase or recovery phrase is a combination of 12 or 24 words compatible with the BIP39 standard, arranged in a specific order. The primary functions of seed phrases in crypto wallet password recovery offer clarity regarding their importance.
However, storage and management of the seed phrase are quite challenging for crypto owners. You should learn about crypto fundamentals and the best practices for crypto security for using the seed phrase effectively. Learn more about the seed phrase and its functionalities.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!