16. What is the seed phrase in cryptocurrencies?
A seed phrase, otherwise known as a recovery phrase, mnemonic phrase or recovery phrase. It consists of 12-24 words that effectively protect our cryptocurrency hardware wallet. The seed phrase protects and secures our digital assets. Have you wondered what exactly it is and how it works? In today’s lesson, we will answer your questions.
The seed phrase – an explanation
To begin with, remember one very important thing. The seed phrase is not your private key. In the simplest terms, it is a string of 12-24 words that you receive when you set up a hardware cryptocurrency wallet. When you install your new wallet, on your phone or computer, you are told to securely save the string of words displayed. These are essential for recovering the wallet we have generated in case it is lost, or the password is lost. This is why it is so important to write them down and store them in a safe place that is inaccessible to third parties. The recovery phrase is assigned to the wallet you are using, not to a specific cryptocurrency. Ideally, you should make yourself several copies of the phrase and store it in several secure locations, such as a safe. Make sure you know where you are keeping it. Otherwise, it could have terrible consequences for you.
Seed – how it works
As we have already mentioned, these are word phrases. Usually, a string of 12-24, the system selects them at random from a pool of 2048 English words. Each word represents a number, which is then converted into your private key. Cryptocurrency wallets are based on three standards: BIP32, BIP39 and BIP44. It is BIP39 and BIP44 that are responsible for generating the list of words that we need to save. These standards are also responsible for converting the generated phrases into a 512-bit SEED. The result is a portfolio with a BIP32 (Hierarchical Deterministic – HD) standard. So, you already know how most hardware wallets work, in which we store all our cryptocurrencies.
Each word, generated, consists of a minimum of three characters. Advanced mathematical functions are responsible for everything, of course. We can recognise the words in our pool by just the first four characters. But it is always the fifth that will be the special one. This is why we usually write down the first four characters. We simply don’t need the next four. How do you secure your seed?
∙ If you do not share your phrase with third parties, it is almost impossible to guess it. Nevertheless, consider all the risk factors you may encounter along the way. After all, there is a likelihood that hackers could gain access to your computer and steal your phrase if you store it in a file on your desktop, for example. Here are some tips to help you feel safe:
∙ Do not – under any circumstances – share your seed and private key with third parties.
∙ Generate the recovery phrase completely offline.
∙ Once you have the string of words, it is best to write it down on a piece of paper or metal plates that you can buy from special shops.
∙ If you use a wallet connected to the Internet, purchase a good antivirus and use 2FA.
∙ Even though you only need the first four characters to retrieve your wallet, write the whole thing down anyway. Remember the correct order.
∙ If you have used a piece of paper for this, copy it and preferably store it in a safe or lock box.
∙ It is a good idea to save the seed as a copy of a portable memory stick, e.g. on a pen drive. Of course, do this when it is not connected to the network. As an option, use aeroplane mode.
∙ Never, ever save the seed to an online file, e.g. Google Docs.
∙ The same on your phone or in a file on your computer. Even if the folder you put the phrase in is password protected, hackers can still manage it.
∙ Don’t take a screenshot of your phrase or save it in your password manager. ∙
∙ You can use the Shamir algorithm. It allows your seed to be broken down into multiple parts. As a result, the individual pieces are useless. They also do not reveal any information.
∙ Hidden wallets, so-called passphrase. This is one of the features of hardware wallets. With it, you as a user create an unlimited number of hidden wallets. You leave yourself “change” on one and invest larger amounts of your cryptocurrencies on the others.
∙ You can use stainless-steel tiles or a set of steel tiles.
The above tips will certainly allow you to choose the best option for you. We, from experience, recommend a simple piece of paper that you will keep safe.
You already know exactly what seed phrase is. How it works and what it is based on. It is crucial to keep it as safe as possible when storing it. We have provided you with many tips from which you will choose the best one for you. Enjoy your adventure with hardware wallets! If something is unclear to you, please visit our other lessons, where you will find the answers to your questions.
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