What Is A Seed Phrase And Why Is It Important?

What Is the Importance of Seed Phrases?

Seed phrases play a crucial role in securing cryptocurrency wallets. They allow users to restore access to their funds in case of device loss or forgotten passwords. When setting up a new wallet, it is enough to enter your seed phrase to restore all private and public keys associated with the original wallet. The seed phrase also serves as a master key for theft protection: storing this phrase in a safe and inaccessible place prevents unauthorized access to funds. Even if attackers gain control of the device, they cannot access the cryptocurrencies without the seed phrase. The seed phrase allows the user to transfer funds to a new device, maintaining control over their assets in the event of the original device’s compromise.

A few years ago, there was an incident where the co-founder of Estonia’s LHV Bank, Rain Lõhmus, lost seed phrase for a wallet containing 250,000 ETH. He announced his intention to recover it with the help of artificial intelligence. Rain plans to create an AI copy of himself to attempt to retrieve the memories and restore access to the funds. Don’t be like Rain Lõhmus—write down your seed phrases and store them in a secure place.

How Do Seed Phrases Work?

When a user enters a seed phrase, it is converted into entropy (a random sequence of bits) and a checksum. This entropy is then used to generate private key, which create public addresses. The blockchain verifies these addresses against registered data. If the seed phrase is incorrect, the checksum and addresses do not match, blocking access to the funds.

How to Generate a Seed Phrase?

A seed phrase is generated during the wallet creation process and remains unchanged throughout its use. Technically, it works as follows:

Creating Entropy

A random sequence of bits (128, 160, 192, 224, or 256) is generated.

↓

Checksum

A checksum is added to the entropy, which is the first few bits of the hash (SHA-256) of the entropy.

↓

Splitting into Groups

The entropy with the checksum is divided into groups of 11 bits.

↓

Conversion to Words

Each 11-bit group corresponds to a word from a predefined list of 2048 words (BIP39).

You can view the list of words in the Bitcoin (BTC) repository.

Risks and Considerations

The only risk to a seed phrase is the human factor. It can be lost, forgotten, or subjected to theft. Losing a seed phrase means losing access to cryptocurrency assets without any possibility of seed phrase recovery, while theft gives attackers full access to the wallet’s funds. All cases of seed phrase loss are associated with improper storage. For example, some store seed phrases digitally, while others fall victim to scams and voluntarily disclose their seed phrase. Phishing and social engineering methods pose a significant threat, as attackers can deceive users into sharing their seed phrases.

Technically, guessing a seed phrase is extremely difficult due to its structure. A seed phrase consists of 12, 18, or 24 words randomly generated from the abovementioned list. This creates an enormous number of possible combinations, making guessing virtually impossible. For example, a 12-word phrase has 204812 possible combinations, far exceeding the total number of atoms in the universe.

How to Store Crypto Seed Phrase and How to Protect It?

Let’s consider several methods how to store seed phrase.

1. Physical Storage:

• Paper Backup is one of the most reliable methods. Write the seed phrase on paper and store it in a secure place, such as a safe.
• Metal Plates: Metal is an excellent option for recording the seed phrase. It can protect it from fire and water.

2. Protected Devices:

• Hardware Wallets: Store the seed phrase on specialized devices protected from hacking and provide secure storage.

3. Encryption and Duplication:

• Encryption: If you need to store the seed phrase digitally, use strong encryption.
• Duplication: Create multiple copies of the seed passphrase and store them in secure locations.

4. Splitting the Phrase:

• Splitting into Parts: Divide the seed phrase into several parts and store them separately. For example, keep part in one safe and part in another. You can also entrust parts of the seed phrase to people you trust.

Anyway, it’s up to you where to keep seed phrase.

How to Recover Seed Phrase?

Restoring a secret recovery phrase is impossible, but you can use it to regain access to your wallets. Let’s consider how to restore access to the most popular wallets:

Ledger

1. Install the Recovery Check app:

• Open My Ledger in Ledger Live.
• Connect and unlock your Ledger device.
• Find Recovery Check in the app catalog and install it.

2. Launch Recovery Check:

• Connect and unlock your device.
• Open the Recovery Check app.
• Select the length of your seed phrase (12, 18, or 24 words) and confirm.

3. Verify your seed phrase:

• Enter the words of your seed phrase.
• Confirm.

The device will display “Phrase is correct if the saved recovery phrase is correct.”

Trezor

1. Go to the Trezor Wallet Setup page:

• Connect your Trezor device to your computer using a USB cable.
• Open a browser and go to the Trezor Wallet setup page.

2. Install Trezor Bridge (if necessary):

• Follow the on-screen instructions to install the software.

3. Start the recovery process:

• Select “Recover wallet” and enter your seed phrase.

4. Create a PIN code:

• Follow the instructions to create a new PIN code.

MetaMask

1. Install MetaMask and open the app.
2. Select “Restore an existing wallet.”
3. Enter your wallet seed phrase.
4. Create a new password.

Following these steps, you can restore access to your wallets using your seed phrase.

Private Key vs Seed Phrase

Private keys and seed phrases are key elements in managing cryptocurrency wallets, but they have distinct purposes and different functions. Let’s examine the difference between seed phrase and private key.

The private key signs transactions, decrypt data, and manages funds, while the seed phrase allows you to restore private keys and access to the wallet. The seed phrase acts as a backup from which all necessary keys for managing cryptocurrency assets can be recreated in case of device loss or wallet access. Simply put, a private key can be restored using a seed phrase, but a seed phrase cannot be restored using a private key.

Conclusion

A seed phrase is not just a random set of words. It is generated using complex algorithms that protect the wallet from attackers. Unlike a private key, which can be restored, a seed phrase cannot be restored. Therefore, use reliable storage methods and think twice where to store seed phrase to avoid creating an AI copy of yourself in hopes of remembering the words. For those who are still afraid to store funds in such wallets, there is a crypto exchange. They offer additional security and convenience, such as two-factor authentication and cold storage of assets on the exchange’s accounts.