Using different measures to protect precious assets stored inside of a digital wallet has become necessity in the world of finance, where traditional money storing methods have slowly been losing the dominance they once used to have. Thousands of digital wallet providers have managed to develop a presence in the market due to the massive gain in popularity of cryptocurrencies and other forms of digital assets.
Additionally, these wallet providers strictly follow certain regulations regarding user account protection to make sure that all user accounts are safe from dangerous entities and equal treatment is given to all. The term “Seed Phrase” is very commonly used in the cryptocurrency space, as any cryptocurrency users looking to store their assets inside of a digital wallet will have to deal with a seed phrase, because it is necessary.
With that out of the way, this article will now discuss in much detail about seed phrases and what is their significance in the cryptocurrency space.
What is a Seed Phrase?
A seed phrase is basically defined as a set of words that act as the master key towards unlocking a digital wallet and gaining access to the assets inside of it. A seed phrase is initialized alongside the creation of a digital wallet for the user to save. To understand this concept better we can look at an example. A blockchain has a plethora of addresses stored inside of it and these addresses highlight where cryptocurrency is being moved towards.
This is very similar to how bank accounts work which also highlight the money moving activities. As of today, visiting a bank physically is said to be a chore because of the convenience of digital banking apps. While normal bank accounts deal with traditional currencies, cryptocurrency wallets help you manage your cryptocurrencies and tasks related to crypto trading without any physical presence.
In the case of normal banks, to gain access to money via an ATM or purchasing, you need to enter a specific pin code that you set and in the case of you losing the card or pin, you have to contact the bank. So, in the cryptocurrency space, it is you who are supposed to manage your own banking, and this is where seed phrases come into play. However, the thing to be noted is that since cryptocurrencies are stored inside of the blockchain, assets can be recovered back.
A seed phrase helps in the recovery of a cryptocurrency digital wallet if a user has forgotten their password. The seed phrase can also be called as the master key of the wallet. If the wallet is lost or deleted, the user can utilize the seed phrase to recover the assets of that account into another newly created one.
Recognition of a Seed Phrase
A seed phrase might seem to be confusing for some, so it is important to recognize it and understand how it is made. A seed phrase is mostly generated by the cryptocurrency wallet provider itself and the user are not able to make any changes to it. The set of words created originate from a list that contains exactly 2048 words, but the question about the length of a seed phrase comes into play. A seed phrase is basically a lengthy string that has a set of random words.
The number of words in a set are mostly set to be in between 12 to 24 words. Example of words include, “table”, “power”, “lightning” etc. As an example, if the phrase as 12 words, the number of combinations for the words would be 2048^12 which equals to 2^132 meaning that the seed phrase would have 123 bits of security level. But some data in the seed phrase is not completely random, so the actual security level of the phrase would be 128 bits.
Those sets of words are generally very easy to read and pronounce and do not contain any long numbers or special characters. This is to make sure that the user does not forget the string, so that it is easy to recall when in need.
In order to make sure that there aren’t any errors, the string of words do not consist of any combination of similar words. For example, the seed phrase strong will not have “man” and “men” but will rather have one of the two. The formalities of the seed phrases were first introduced in the Bitcoin improvement proposal (BIP-39) back in the year of 2013, basically setting a sort of standard to how the words inside of a seed phrase strong are to be established.
The seed phrase is responsible for having control over every single private key that has connected to that digital wallet. According to the Bitcoin improvement proposal (BIP-39), many major wallet services gained interoperability, enabling users to recover their funds from different accounts, if the wallet supported BIP-39, developing a sort of convince in the case of the user their forgetting their password, losing the wallet or switching to a different wallet.
The following is an example of a 12-word seed phrase:
Cat, Sad, Pressure, Bread, Ever, Long, Determine, Apple, Tree, Single, Rain, Planet
Generating a Seed Phrase
As previously mentioned, seed phrases are mainly generated by the wallet provider itself. This is because there is a consensus that humans lack the ability to handle randomness in comparison to a computer algorithm, so creating your own seed phrase is not recommended.
Because seed phrases consist of words that are mostly in natural language, the percentage of error correction is very high. Even if the words are written in bad handwriting, they can still be recognized, even in the case if the there are a couple of letters that are missing.
The list used to generate the seed phrase is very carefully selected, to ensure that the initial four letters of each word can be analyzed to identify the words. This is said to be way better in comparison to noting down a private key on a piece of paper, where sometimes if the words are not recognizable, then the private key becomes useless, however this factor depends upon the handwriting of the wallet holder.
However, the thing to note is that the list selected to generate the set of words in a seed phrase is not shared with anyone, so it is highly important that the seed phrase should be stored in a secure place. More on this in the coming sections.
Seed Phrase Use Cases
Seed Phrases only have a few use cases that need to be understood. Below mentioned are the uses cases for seed phrases.
- Creation of a Crypto Wallet
For example, you need to create a crypto wallet to store some digital assets. You can either use the software apps or a hardware wallet to do so. Then you will be provided with a seed phrase, which basically provides you a spot on the blockchain to store your assets.
However, this spot on the blockchain is only associated with that seed phrase, so if you lose the seed phrase then you lose the assets. So, if you want to start trading again, you will need to create a new seed phrase and wallet all over again.
- Restoring a Wallet
In the case of you losing the wallet, forgetting the password or accidently deleting the wallet application, you can create a new wallet and then use the seed phrase to recover your assets.
Storing a Seed Phrase
This task might seem a bit necessary, however it is important that you remember your seed phrase for you to keep your precious assets inside of a wallet safe and accessible. Below mentioned are a few methods you can use to store and keep a backup of your seed phrase.
- Piece of Paper
Writing down your seed phrase on a piece of paper and safely storing it is an option, however paper carries several risks that includes the risk of losing the paper, the paper is ripped somehow, the paper is burned in a fire or gets wet. But despite these risks, the paper method is said to the easiest option. Hardware wallets comes with a price of high-quality paper inside of the packaging, so that of the user needs to store the seed phrase in it, there is an option.
- USB Drive
USB drives are also a great way of storing a seed phrase, but it still carries additional risks in comparison to paper which do not guarantee the safety of it. The additional risks include physical damage to the USB leading to either loss or corruption of the data inside of it. And because USB drives are accessed through computers or mobile phones, it is strictly advised not to connect the drives to any other device having an active internet connection, because of malware or viruses.
- Physical Card
This is basically an extension of having a seed phrase written on a paper, but there are different sets of materials involved in this method. A better alternative to paper is metal or steel physical cards having seed phrases engraved on them. There is a risk of losing it, however other risks are mitigated, as metal cards cannot be ripped or get damaged by water and can also last way longer than paper.
- Remembering
As straightforward it might seem, this method only has a single risk and that is literally forgetting. However, this method should only be used if the user has complete trust over their memory and are able to recall things very easily and reliably.
In truth there is technically no perfect way to fully store your seed phrase but having multiple different methods of backup is almost the perfect way of keeping your seed phrase stored and accessible. Although, there are some major things that need to be kept in mind when storing seed phrases. These might seem a bit confusing, but they are important to keep your seed phrase secure from dangerous entities.
- Do not have any photos of the seed phrase, as photos can be acquired using malware or viruses. Especially in the case of a ransomware attack, where user files become inaccessible.
- Do not use any password manager to store the seed phrase, as these can have vulnerabilities that can be exploited to acquire data.
- Do not store the seed phrase on a device with an active internet connection, as malware and viruses can be used to collect information.
- Do not use any websites that offer to store your seed phrase, as seed phrase should be highly confidential and should not be shared in any case.
Seed Phrase Protection
In the crypto space, any loss of valuable assets is certainly a nightmare for any user. If the seed phrase is compromised, then it basically means that the assets associated with that cryptocurrency wallet are not able to be recovered. Because seed phrase is the master key, losing it to the wrong hands can be devastating.
Despite all this, there are several ways to protect a seed phrase. Having a long seed phrase can make it difficult to get hacked. One of the primary ways that hackers use is the phishing method, in which scammers try different ways to convince inexperienced users to give in their seed phrase or private key, letting them gain access to their assets, without the user knowing about the true intention initially.
Some scammers pretend to be representatives from the wallet provider, basically asking for your private key or seed phrase to verify your ownership. No wallet company asks for your confidential information, so it is important to avoid such situations.
Hackers can also deploy malware and virus through emails and fake software to obtain data from user systems. The most important thing is to keep the seed phrase or private key highly confidential and should not be openly shared with anyone in any case.
The list of don’ts mentioned above should be highly considered to secure the wallet. Additionally, there is another way that involves generating a copy of your seed phrase, however that copy must only be shared with the most trusted people you know, but this is still not advised.
Losing a Seed Phrase
If you are not able to recall the seed phrase, then consider your assets to be inaccessible using any wallet service. As mentioned before, the assets are stored inside of the blockchain and can be recovered through any wallet service if the seed phrase is available. But if the seed phrase is lost, then it is basically game over. And because of the random nature of the seed phrase, depending upon its length, it is very difficult to guess or remember it without any backup.
There are multiple ways of storing a seed phrase securely which are mentioned above, so there should not be any problem recovering a seed phrase.
Differentiating Seed Phrase and Private Keys
Although both have very similar functionality of securing cryptocurrency wallets, a seed phrase is quite different from a private key. A seed phrase is a type of password that is used to recover a cryptocurrency wallet if the user has accidently forgotten the password of their wallet. A private key is utilized to direct towards a certain blockchain address to help complete transactions.
The private key is basically a type of ownership proof presented when there is a transaction involving cryptocurrencies. A seed phrase in general is called as the master key that is responsible for the accessibility of the user’s assets inside of a wallet. The main point of having a seed phrase is for the owner of the wallet to have complete control over the assets. Even if the user losses the wallet, the assets can still be recovered if the seed phrase is available.
In simple terms, the user can gain access to the assets from any wallet service, if the seed phrase is there, it’s like having access to a universal charger that is compatible with any laptop. If there was no seed phrase, then recovering assets would have been a big hassle for both users and the wallet providers.
Summary
Summarizing all the details mentioned in the above sections, a seed phase is basically a master key that is used to access digital assets that are stored on the blockchain. With the seed phrase, assets can be acquired from any wallet compatible with the blockchain, however if the seed phrase is lost or inaccessible, then there is basically no hope of recovering the assets.
There are many ways of storing and keeping the seed phase secure. Different methods involve writing it on paper or metal card, storing it inside of drives that are available, however the main thing to keep in mind is that the seed phrase should always be confidential and should not be shared openly in any case whatsoever. Keeping your digital assets protected and secure from dangerous entities is important to ensure that you are performing the best when it comes to cryptocurrency trading.
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