In 2013 it was reported that James Howells, an early Bitcoin investor, was searching for a hard drive containing 7,500 Bitcoins, which he would have bought for next to nothing and would be worth over $375 million USD (as of mid 2021). Long story short, he never found the hard drive and he missed out on becoming a crypto millionaire.
James Howells is definitely not the only one to suffer costly losses in the crypto space due to losing or misplacing their private keys, which give them access to their funds. The lack of recourse once someone lost their private keys is why seed phrases came to be.
You see, there was never any Bitcoin on that harddrive he threw out. Bitcoin can only ever be stored on its blockchain. What James lost was the access to those 7,500 Bitcoins. To have access to cryptocurrency on a blockchain, you don’t need hardware necessarily, you need the permission to spend or send it. That permission or ownership, comes in the form of encrypted Private Keys.
APrivate Key is a combination of numbers and letters that is impossible to guess. Something like this: 5KYZdUEo39z3FPrtuX2QbbwGnNP5zTd7yyr2SC1j299sBCnWjss
Recovery or Seed phrases take this string and convert it into words. A mnemonic phrase consists of 12-24 words, and it can generate an infinite number of private keys.
So going back to James, if he’d have stored the Recovery phrase – even on a scrap of paper… he’d be a lot wealthier.
What is a Seed Phrase?
A seed phrase is a list of words that can be used to recover a cryptocurrency wallet. A cryptocurrency wallet is a program or service that stores private and public keys and allows you to send and receive cryptocurrencies. You cannot transact or trade cryptocurrencies without a crypto wallet.
A seed phrase is also known as a seed recovery phrase, backup seed phrase, seed words, mnemonic seed, mnemonic code words, or mnemonic phrase. The terms are interchangeable.
Some people use the term seed phrase interchangeably with a private key, which is not correct. Using cryptography, your wallet can derive your private key using a seed phrase. A seed phrase can be used to generate a huge number of private keys but not the other way round.
Note that a seed phrase can only be used on BIP39 compatible wallets. Some BIP39 wallets include Ledger, Trezor, Coinomi, Jaxx, Ownbit, Blue Wallet, MyEtherWallet, and MyCryptoWallet. BIP39 wallets cut across hardware wallets, software wallets, mobile wallets, and web wallets.
Importance of a Seed Phrase
One major advantage of a seed phrase is that it provides users with an easier way of backing up their wallets. If you ever lose access to your wallet, lose your private key, a seed phrase can help you recover your funds.
It is this advantage of a seed phrase that makes it vital that once you get it you store it safely, away from anyone that might want to steal your funds.
How to Recognize a Seed Phrase
A seed phrase is a series of 12 to 24 random words taken from a list of 2,048 English words called the BIP39 word list. BIP39 specifies how wallets should implement seed phrases for better compatibility.
Entered in the right order, as provided, the words using formulas are converted into numbers that give access to your wallet that contains your private and public keys, giving you access to your funds.
Here is an example of a seed phrase
“hybrid, forget, follow, flip, wing, achieve, swallow, dinner, view, witness, proud, correct”
The reason why the seed phrase comes in word form and not a string of numbers is because human beings are better at remembering and interacting with a series of words. However, this does not mean that you try and memorize your seed phrase.
Note that each seed phrase is different from the other. The chances that you might share a seed phrase with another person are virtually zero.
Where to find your seed phrase
You get a seed phrase when creating a cryptocurrency wallet. Cryptocurrency wallet software generates the phrase. You mustn’t skip the seed phrase generating option.
It is highly advisable when you get your seed phrase you note it down somewhere and store it safely. Anyone who has access to your seed phrase can gain access to your funds.
In case you forget to note down your seed phrase or misplace it several crypto wallets provide a way you can view the seed phrase.
Example: View your seed phrase on MetaMask
Metamask wallet is a popular crypto wallet used for Ethereum. If you are accessing the wallet through its app you can find the seed phrase by following these steps
- Go to the app “Settings” option. On the top right corner of the Metamask mobile app are three lines which when you tap on will reveal a drop-down menu with the “Settings” options.
- Once you tap on “Settings” another tab will appear. On the tab go to “Security & Privacy” and tap on it
- On “Security & Privacy” scroll down to “Reveal Seed Phrase”, once you tap on that option your Seed Phrase will be revealed. You can note it down or store it safely on a flash drive.
How to safely store your seed phrase
There are several ways you can safely store your seed phrase. They include;
- Paper and Pen
Pen and Paper is one of the most common ways to store a seed phrase. It is also one of the cheapest ways as you do not need fancy storage hardware.
Once you get the seed phrase all you need to do is write it down and store it in a safe place. A safe place could be a place where only you have access. You can either write the entire phrase on one piece of paper or divide it and write it on several pieces of paper.
- Steel storage
Paper and pen are good for storing your seed phrase till you consider the risks. For example, fire or water can easily destroy paper. So in case of fire or water accidents, you can easily lose your seed phrase.
Steel wallets come in to solve the risks involved with storing your seed phrase on paper. Steel wallets are designed to protect your seed phrase from fire, water, rust, corrosion, and EMP shocks.
Some of the best steel storage options include Cryptosteel capsule, Cryptosteel cassette, Cryptotag, and Billfodl backup. Like paper storage, steel wallets are also meant to be stored safely where only you can access them.
- Hardware wallets
Hardware wallets are also known as cold storage as they keep everything off line. Trezor and Ledger, provide two of the best ways to securely store your seed phrase. Hardware wallets make it almost impossible for hackers to get your seed phrase or access to your funds because they would need the physical device. Also, hardware wallets require a PIN number (determined by the owner) to activate and unlock.
How not to store your seed phrase
Don’t do any of this:
- Directly on your computer
A seed phrase is never to be stored on any device connected to the internet. So it’s not just your computer, don’t store your seed phrase on your tablet or phone.
Over the years the crypto space has proved to be one of the most profitable places for hackers. If you don’t want to end up losing your funds to hackers, avoid storing your seed phrase on any device that connects to the internet.
The cloud might sound safe to some people but its reliance on the internet makes it another bad option for storing your seed phrase.
Witty and successful hackers (which is almost all of them) can easily find ways to manipulate certain system vulnerabilities and gain access to people’s seed phrases leading to loss of funds. Simply put, anything internet-related is not safe for seed phrase storage.
Why it is Important to Safely Store Your Seed Phrase
Your seed phrase plays a vital role when it comes to accessing your funds. Just like your private key, its safety is of utmost importance. Here are two reasons why it is important to safely store your seed phrase
- If you lose your seed phrase you lose access to your funds: the crypto space can be ruthless, once you lose money in the space getting it back is always impossible.
- If someone who is not you gets access to your seed phrase you lose access to your funds: a seed phrase gives access to a crypto wallet funds and assets. Whoever has the seed phrase can gain access to the crypto wallet.
You cannot risk misplacing or losing your seed phrase to someone else. This is why it is also important you never, ever, share the phrase with anyone. Not even Ned Flanders. No one should ask for your seed phrase over social media networks. You should also never type it on any website.
Note that a seed phrase is not crypto-specific. Anyone who has the phrase can use it for an entire portfolio of cryptocurrencies and blockchain assets.
Your Own Seed Phrase
Can you create your own seed phrase? Apparently, yes, you can. However, it is not advisable or recommended to do so. One of the many reasons why is because human beings are bad at generating randomness. Epically bad. This means any seed you create would be less secure.
The security level of a seed phrase relies on randomness. By generating your own seed phrase you are lessening the security level of your crypto wallet, risking the security of your funds. This is because you are making it easier for someone to figure it out.
Besides individuals guessing your seed phrases, bots are also in place that can search for seed phrases that follow a certain pattern and aren’t generated at random.
When given the choice to create your own seed phrase or let the wallet’s software generate it for you, choose the latter. Seed phrases generated by wallet software offer more and more reliable security than seed phrases created by human beings. They are less flawed at it. Although we do play hockey better.
Seed phrases are important for the safety and security of your crypto funds and assets. The phrases provide one of the best ways to recover your funds in case you lose or misplace or destroy your physical device.