What is a cryptocurrency seed phrase? How it works and how to secure it
A seed phrase (seed phrase) is a sequence of 12 or 24 random words that contain information necessary to recover a lost or damaged cryptocurrency wallet. It is also known as a mnemonic phrase and is considered a security key for digital assets held in personal custody.
Sometimes the seed phrase is called a “recovery phrase” or “backup phrase”. Some people use this term as a synonym for a private key, which is a mistake, because they are different things.
A cold wallet protects your crypto assets at the time of use, which makes your transactions safe, isolated from the Internet and, accordingly, from viruses and hackers. You can break it or lose it, and your money won’t go anywhere. The recovery phrase is the only key to your safe with money. But if someone knows your passphrase, they can open your balance on a separate device and withdraw money.
For example, to guess seed from 12 words, you need to go through 2048 words in 12 powers. And to guess the seed of 24 words – 2048 in 24 powers.
What is the difference between a sit-phrase and a mnemonic phrase? Nothing. They are synonyms.
Who creates a seed? Where can I get a passphrase? When you initially set up/launch/create a crypto wallet, the passphrase is generated by a computer.
Can I come up with a passphrase on my own? No. A passphrase is a complex mathematical encryption where the last word directly depends on the first 23 words.
What is BIP39
BIP39 (Bitcoin Improvement Proposal 39) is a standard used to create and manage Seed phrases in cryptocurrency wallets. It defines the process of generating a mnemonic (mnemonic phrase), which is a sequence of 12, 15, 18, 21, or 24 words used to create and recover cryptocurrency wallets. These phrases are generated based on a random set of bits and can be converted into a seed, a binary code used to create master keys and subsequent private keys. BIP39 greatly simplifies the process of backing up and restoring wallets, making it more convenient and secure for users.
Some cold wallets (Ledger, Trezor) have an additional function – 25 word.
This is a word that you come up with yourself, it can be up to 100 characters long. Thanks to it, you will create a wallet within the wallet, so to speak, a hidden balance to which you can transfer most of the funds. You can open this balance using a 24-word recovery phrase and enter the 25th word separately.
That is, if an attacker steals your passphrase, they will only be able to see zeros or some small amounts, but the rest will be protected by this 25-word passphrase.
Ref: The most famous cases of cryptocurrency theft through access to wallets as a result of a stolen seed phrase:
Physical and digital storage options
Some people think that the best way to store a passphrase is on a smartphone, PC, or Google Docs. However, this is not a good idea, as hackers can quickly find it using software. Besides, if your phone or PC crashes, you may lose access to it forever.
The safest way to store your passphrase on physical media in a secure place is to:
Warning: The least secure option is electronic media – disks and flash drives.
If you are going to create a crypto wallet and use cryptocurrency, you need to be very responsible about the seed-phrase. Consciously choose a way to store it, taking into account all the pros and cons described above.