In the ever-changing landscape of cryptocurrency, ensuring the security of your digital assets is important. The seed phrase lies at the heart of one of the most critical security features for storing cryptocurrencies.
Often regarded as the cornerstone of crypto storage, a seed phrase is a unique sequence of words that serves as the master key to access and recover your funds, in the event of loss or compromise.
Reports suggest that almost a third of the current Bitcoin supply consists of lost or dormant coins. In fact, a man named Stefan Thomas lost the password to his encrypted USB drive which contained about $240 million worth of Bitcoin. Understanding the significance of a seed phrase is not just about safeguarding your investments but also about embracing the fundamental principles of decentralized finance.
This article unpacks everything you need to know about seed phrases, how they work, and how to safeguard them.
A seed phrase also known as a recovery phrase refers to a string of 12 to 24 words that are chosen from a list. These words hold access to your crypto wallet. Unlike private keys, seed phrases are strictly composed of words, no numeric or special characters. Seed phrases are human-readable and easy to remember.
Seed phrases are selected from a list of 2,048 words, first proposed in the Bitcoin Improvement Proposal number 39 (BIP-39). After creating a crypto wallet, the seed phrase is automatically generated. The seed phrase is then used to create the private keys that let you spend the cryptocurrency. Both hot and cold wallets can use a seed phrase. The seed phrase provides access to the cryptocurrency associated with the wallet.
Seed Phrases | A 12-word phrase sequence
The BIP-39 created the terms and developed a standard for deterministic wallets. The goal of BIP39 was to create a universal backup process for crypto wallets, ensuring cross-compatibility between different wallets. This means you can switch wallets by entering your seed phrase into a new compatible wallet and you can recover the crypto assets. However, you must enter the words in the exact same order.
While it’s true that seed phrases are related, there are some key differences between them. However, the two are used to secure crypto wallets. Here are the major differences between seed phrases and private keys.
Seed phrases are crucial due to the functions they perform. First, they provide a secure mechanism to recover your access to digital wallets. Many individuals have lost access to crypto assets worth millions either due to damage, theft, or losses. With seed phrases, you can restore a wallet on another device, once you remember the right sequence.
They also serve as a user-friendly backup option. Complex cryptographic keys are difficult to memorize. With seed phrases, you can easily store and memorize human-friendly words to gain access to your digital wallet.
Seed phrases can also work across compatible wallets. For example, BIP32, BIP39, or BIP44 wallets can have compatible recovery. This helps in cases where the wallet manufacturer no longer operates. They also help to ensure users retain absolute control over their digital assets without depending on external parties. This stays true to the decentralization feature of cryptocurrencies.
It’s important to keep your seed phrases under lock and key. First of all, you should only use crypto wallets such as MetaMask that employ secure seed phrase generation methods. It’s advisable to ensure your seed phrase is generated offline to avoid the risk of exposure.
When storing your seed phrase, keep it offline. Keeping it online can increase the risk of hacking or theft. The best practice is to write it down physically and store it in a secure place. You can keep copies of your seed phrase in separate physical locations.
Confidentiality is also important. Your seed phrase should be kept private. No wallet developer should ask for it. It’s important to note that if you lose access to your wallet and your seed phrase, the loss will remain permanent. So, you should keep your seed phrase carefully.
Seed phrases need to be created on an accompanying hot or cold wallet. This example uses MetaMask, a popular hot wallet. These steps can be replicated for similar hot wallets such as Trust Wallet etc.
Step 1: Download and install the MetaMask Extension on Chrome, Firefox or Edge. Once installed, click on create a new wallet.
Step 2: You will receive a prompt to create a password. Create a strong password with a combination of alphabets, numbers, and special symbols to protect your MetaMask wallet.
Step 3: Secure your wallet with a secret seed phrase. This is the step that allows you to generate and store a 12-word seed phrase to protect your MetaMask wallet. This seed phrase is also useful when you want to recover an existing wallet or move it to a new device.
Step 4: Once you have generated and saved your 12-word seed phrase, you will be asked to confirm your recovery phrase by entering some missing words from the MetaMask prompt.
Step 5: On completion of this step, your wallet has been successfully created and you now have your 12-word seed phase for securing your digital assets.
Seed phrases are a crucial aspect of crypto security. They are a sequence of random words that guarantee the recovery of wallets. While seed phrases offer an extra layer of security and recovery, handling them responsibly is important. Losing access to them can result in the loss of your wallet. Even worse, if it becomes exposed, you could lose your assets.
They are a sequence of 12 to 24 words that contain the information needed to recover a crypto wallet.
Yes. Seed phrases are human-friendly. You can memorize them using different memory techniques. However, it’s important to keep physical backups.
Seed phrases offer a recovery solution against loss and theft. They also employ robust encryption to guarantee cross-compatibility.
Your seed phrase should remain confidential. No wallet developer or online provider should gain access to your seed phrase.
Meta: Learn what seed phrases are and how they add an extra security layer to your crypto wallet. Discover how you can store and safeguard your seed phrases.
The INX Digital Company inc. is an expert in the field of finance, crypto and digital securities.
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