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PATHWAY B) How to secure your crypto

chapter 3/4

What is a Seed Phrase (Secret Recovery Phrase)?

Read 6 min
Beginner
Your secret recovery phrase is the backup of all the private keys stored in a given crypto wallet.
KEY TAKEAWAYS:
— Your Secret Recovery Phrase (or seed phrase) is the backup of all the private keys stored in a given crypto wallet. It allows you to recover all of your blockchain addresses, even without the original crypto wallet.

— This 12-24 word phrase must be kept secure- it’s vital to never enter it into a computer or smartphone and to never share it with anyone as it allows anyone to restore your entire wallet.

— Your seed phrase is the most sensitive piece of data: You must write it down correctly, otherwise you may lose access to your wallet.

Crypto is all about self-custody; unlike traditional banking, you can take ownership of your assets. However, this comes with responsibility. Protecting your private keys is one thing, but retaining access to your wallet is another. Today, there are countless dormant Bitcoin wallets–all owned by people who no longer have access to their accounts. 

That’s why backing up your crypto wallet is so important. Who knows what challenges your backup may face, from loss or theft to natural disasters?

So, how do you back up your crypto wallet effectively?

Well, the answer lies with something you may be familiar with if you already have a crypto wallet: your Secret Recovery Phrase, also known as a seed phrase.

In short, it lets you restore an entire crypto wallet on a new device or interface—along with all of the accounts associated with it. But there’s a bit more to it than that. Let’s dive in:

What is a Seed Phrase?

A seed phrase, also known as a Secret Recovery Phrase (SRP) or mnemonic, is simply a collection of words that allows you to restore your entire crypto wallet. It’s those 12-24 English words that your wallet presented you with while setting it up. If you followed its instructions correctly you should have recorded these words in order somewhere.

This simple sequence is similar to a master key for your private keys. To explain, your wallet uses it to generate private keys for multiple networks and accounts. This is how you can restore the entire wallet with that single seed phrase.

So now you know what it is, but what is it for exactly?

What is a seed phrase for?

A seed phrase is simply for providing a backup of your wallet should it become unusable via theft or destruction. Perhaps your wallet got stuck in the washing machine. Or perhaps you were relying on a software wallet on a laptop that doesn’t work any longer. Alternatively, you might just want to change which wallet you use.

In these cases, a seed phrase gives you the option to restore the entire wallet on another device or interface. To explain, your crypto is not in your wallet itself, but on the blockchain. The wallet simply protects the private keys connecting you to those blockchain addresses.  As long as your recovery phrase is the same, the calculation of the private keys will always have the same result—giving you access to all of the accounts connected to that mnemonic.

When setting up a new wallet, it usually gives you the option to set up a new wallet or restore from a recovery phrase. Choosing the latter lets you fill in your 12- 24 words, restoring that entire wallet on your new device or interface. This means that even if your original wallet provider doesn’t exist anymore, you can still enter your words into another compatible wallet to restore your access (although you might want to avoid this for security reasons). 

But before we get there, let’s explore how a seed phrase works, and how it’s able to do this.

How Do Seed Phrases Work?

It’s important to note your recovery phrase doesn’t start off as a set of words. It’s actually just a translated version of a long string of numbers called the entropy. However, the entropy is so long that it’s very impractical to record. To solve this problem, Bitcoin Improvement Proposal 39 (BIP-39) introduced a standardized method to translate that long number into something more easily recorded by a human. Using this method, there are a total of 2048 English words that your seed phrase may use to translate the entropy. 

At this point, you might be wondering; if it’s just a literal translation of a long number, what makes a secret recovery secure? Well, actually, that’s more to do with how the entropy was generated. To explain, the entropy must be very long and random, otherwise someone might be able to guess it. As long as the entropy is chosen at random and made up of more than 128 bits, it’s sufficiently secure that no person or computer will be able to crack it.

Ledger Secret Recovery Phrases (Seed Phrases) Explained

Ledger devices use a Random Number Generator (RNG) to generate the entropy, so it’s extremely random. Plus, all ledger devices use a 24 word recovery phrase, which translates into 256 bits of entropy—sufficiently long that guessing the combination is impossible. 

Initiating the generation process on a Ledger goes as follows:

  1. Turn on your Ledger device
  2. Set a personal PIN code
  3. Your Device generates a random long number, a.k.a. The entropy
  4. The entropy is translated into your Secret Recovery Phrase (seed phrase) using BIP-39
  5. The Secret Recovery Phrase (seed phrase) is displayed on your Trusted Display

If you ever receive a device containing a pre-completed Secret Recovery Phrase or PIN code, do not use the device! It may mean that the device is pre-owned, or possibly even tampered with. Under these circumstances, contact Ledger customer support for more information.

How Can I Keep My Seed Phrase Safe?

So, now you know that your seed phrase is a backup to all of your crypto wallet. This also means that if anyone else can get their hands on your set of 24 words, they can access your cryptocurrencies. As such, it’s extremely important to keep your seed phrase secure. So what can you do to protect it?

Make Sure You Record It Correctly

Firstly, you want to make sure you write down or record your seed phrase correctly. Any error in spelling or word order would cause a different set of addresses to be generated. To lend a hand with this, Ledger has developed a dedicated application. The Recovery Check app lets you check if the recovery phrase you wrote down matches the one protecting your device. Easy!

Store It Offline

Next, you should never store your SRP on cloud-based services. If the server is hacked, your seed phrase—and therefore your wallet—could become compromised. Similarly, you should never transact while using software wallets on devices using shared wifi networks. You wouldn’t want to share your seed phrase with everyone on the airport wifi, would you? Well, keeping a copy of your seed phrase on an internet-connected device is asking for exactly that. 

Recording your seed phrase on something physical— be that a hardware wallet or a piece of paper—is a much better option.

At this point, it’s important to mention that you should never restore your hardware wallet’s seed phrase into a software wallet. To explain, the entire point of a hardware wallet is that it generates your seed phrase completely offline. This means not even the most sophisticated digital spyware could see those words. If you enter that same secure recovery phrase into a wallet that doesn’t have those same qualities, you risk exposing it. In short, if you import your hardware wallet into a software wallet, your secret recovery phrase might be vulnerable to online threats.

Store It Somewhere Away From Thieves, Accidents and Natural Disasters

To follow, you should also bear in mind where you store your SRP physically. If someone steals your SRP sheet, they can easily access your wallet. Thus, no one should know your secret hiding place—not your mom, not your wife, and certainly not your housemates. In the cases where you have no safe place to store your seed phrase, you may be interested in Ledger Recover. The paid optional service allows users to back up their seed phrases by fragmenting and distributing them to custodians. In short, this removes the burden of protecting your seed phrase at home.

Then, of course, sometimes losing your seed phrase is more of an accident. For example, what happens if your house burns down and your seed phrase is stored on a piece of paper inside it? To protect against these types of disasters, a great option is the BillFODL. This type of physical storage is very resistant to potential damage—and sleek at the same time.

Never Share Your Seed Phrase With Anyone

And of course, the final piece of advice is never to share your 24-word recovery phrase with anyone – not even with Ledger. We will never ask for it, nor should anyone else. Remember: you are the final barrier to your assets. Don’t let your guard down, as bad actors will try to socially engineer you into revealing your seed phrase. Not your keys, not your coins: if someone has access to your SRP they have all of your keys.

Your Seed Phrase: A Necessary Wallet Backup Tool

So, now you know all about seed phrases; from what they are to how they work, to how to protect yours effectively. But that’s not the end of your security journey. The ultimate guardian of your Secret Recovery Phrase is you.

Luckily, the Ledger ecosystem offers plenty of options to keep your seed phrase safe. Whether you want to check you’ve recorded the correct mnemonic, find a more permanent storage solution, or even use Ledger Recover, Ledger offers an option that works for you—without losing custody of your assets.

Because if not self custody, then why crypto?


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