What Is a Seed Phrase? Learn the Best Practices to Safeguard It

When embarking on the crypto journey, building a solid foundation is crucial.

As convenient as digital assets are, they are vulnerable to cyber-attacks. But storing digital assets is made secure by cryptocurrency wallets, the digital solution to managing blockchain assets and cryptocurrencies like Ethereum and Bitcoin. These wallets ensure that only the owners can access their crypto funds using security measures like the seed phrase.

By entering the seed phrase, users can regenerate the private keys associated with the crypto wallet and regain control over their assets. The seed phrase must be stored securely as it’s the single source of gaining access to your funds in case your wallet is damaged or lost. It’s recommended to store the seed phrase offline, either in a physical lockbox or hardware wallet.

How does a seed phrase work?

A seed phrase works on a mnemonic algorithm, which represents large random numbers in a sequence of words. It's a user-friendly way of backing up and restoring cryptographic keys. When setting up a new cryptocurrency wallet, users generate a 24 or 12-word seed phrase. 

These words are picked randomly from a predefined list of 2,048 words from the wordlist as per the Bitcoin Improvement Proposal 39 (BIP39) standard. This standard was initially proposed for Bitcoin wallets but became popular across the board. Using a series of words instead of random numbers eliminates human error and makes the seed phrase readable. 

The BIP39 standard also makes crypto wallets cross-functional. So when you switch to a new wallet, you just need to enter the seed phrase into the new wallet to gain access to your blockchain assets.

The seed phrase is converted into a binary number called entropy, which is generated randomly to prevent all possibilities of guessing the seed phrase. The crypto wallet software then uses it to derive cryptographic private keys.

Private key vs. seed phrase 

Private keys and seed phrases are both essential for keeping cryptocurrencies and other digital assets secure. But they aren’t the same.

Private keys are long strings of random letters and numbers primarily used to authorize crypto transactions. They originate from asymmetric cryptography, where two keys (one public and one private) work together to encrypt and decrypt data. The public key is essentially the address of your wallet and is visible to others to facilitate transactions. Private keys are never shared with other people.

On the other hand, seed phrases are not strings of letters and numbers. A seed phrase comprises random words that must be entered in the right sequence to unlock a crypto wallet. Essentially, a seed phrase is a mnemonic phrase or the unencrypted version of a private key.

While both these passwords are generated randomly, private keys use cryptography, whereas seed phrase is generated through the BIP39 standard. With private keys, users can get access to individual blockchain accounts. Seed phrase provides access to the entire crypto wallet that might be linked to multiple blockchain addresses. Both must be stored safely to prevent fraud. 

Can a seed phrase be hacked?

The recommended way to store seed recovery phrases is offline, which isolates them from the internet. This practice will prevent hackers from gaining access to it. The security of your seed phrase will only get compromised if you miss storing it offline and well-protected in a vault. 

So unless you accidentally reveal it or someone steals it, your seed phrase cannot be hacked. But be mindful of phishing methods that trick users into revealing their seed phrase. There are many scams that you should be on the lookout for to prevent compromising your seed phrase accidentally.

If you still have access to your wallet, there’s one way to redeem your crypto assets. Some crypto wallets provide the action to view your seed phrase, given that you are logged in. But even in such cases, it’s better to transfer your crypto to a new wallet and generate a new seed phrase. 

Source: Chainalysis

Best practices to safeguard your seed phrase

Now that we’ve established why you can’t afford to misplace your seed phrase, here are some best practices for storing it securely.

• Stick to paper: The best and most traditional way to safeguard your seed phrase is to write it down on paper. Keep this paper locked away in a secure environment like a fireproof and waterproof safe or deposit box.
• Make multiple copies: Many people duplicate the documentation of their seed phrase and store it in multiple secure locations. In case you forget one of those places, you always have a backup to find your seed phrase.
• Avoid storing it online: Never store your seed phrase online or as a file on your computer. Risks like hardware failure and cyber attacks make these methods prone to security breaches and put your crypto at risk.
• Use a password manager: Password manager tools are encrypted digital vaults to secure sensitive data like usernames and passwords. You can secure your seed phrase there and remember the master password to access every other information. While this is slightly riskier than offline storage, it’s still more reliable than storing seed phrases online with no protective measures. 

Sow the seeds of crypto safety

A seed phrase is a powerful tool to protect and recover your digital assets. But with great power comes great responsibility. You must ensure that your seed phrase doesn’t fall into the wrong hands, as that can result in the loss of your cryptocurrencies. 

But as they say, the digital era is the way forward. The advancements in the upcoming years hold many exciting variations of this technology, like smart account wallets with a whole new set of functionality and possibilities. 

Learn about how governments and institutional investors use crypto custody to protect digital tokens.