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PATHWAY J) Wallet Knowledge II - The Evolution of Crypto Storage

chapter 3/4

Understanding BIP-39: The Origin of Your Seed Phrase

Read 6 min
Black closed belt on a black background.
— The BIP-39 standard introduced a way to restore all of your accounts using a single mnemonic.
—The 12/24-words that make up this mnemonic are also known as a seed phrase or secret recovery phrase.
— Seed phrases are standardized, meaning you can restore your crypto accounts using any supported wallet provider.

If you’re a crypto veteran, you may have noticed a massive shift in the crypto market since its inception. Today, it’s much easier to manage accounts and the crypto inside them than ever before. But to get here in the first place, there have been a few key innovations pushing the industry forward. 

One such innovation is the seed phrase. If you’re new to the crypto scene, you could be forgiven for assuming your seed phrase was always a part of setting up a wallet. But in fact, that’s not the case. So why they were introduced?

Well, before seed phrases existed, handling multiple crypto accounts across various networks could be quite a stressful experience. Blockchain tech wasn’t exactly user-friendly back then. That’s the problem that Bitcoin Improvement Proposal 39 (BIP-39) aimed to solve. In short, it proposed a way to allow anyone to recover their entire wallet with just one mnemonic.  But what is a mnemonic and what is it for?

Before we dive into those details, let’s first address what BIP-39 is and why it was proposed in the first place.

The Origin of Your Seed Phrase: What is the BIP-39 Standard?

BIP-39 was proposed by Marek Palatinus, Pavol Rusnak, Aaron Voisine, and Sean Bowe in 2013. The aim was to further improve the user-friendliness of hierarchical deterministic (HD) wallets proposed in BIP-32. In short, it introduced a way to recover your wallet and all of its accounts using humanly readable mnemonic, rather than a long string of characters. 

But why was it necessary? Let’s take a look at the problem it aimed to solve. 

Why was BIP-39 introduced?

HD wallets, introduced in BIP-32, removed the need to record each public and private key. This was a huge leap forward in making the management of cryptocurrencies easier. With HD wallets, it’s easy to recover a near-infinite number of accounts with a single master private key. Plus, since BIP-39 introduced a universal standard, any HD wallet will allow you to restore your accounts. This makes it easy to manage multiple accounts and switch wallet providers with ease. 

While BIP-32 made managing wallets easier, HD wallets still posed an issue: they required you to record the private key at the top of the hierarchical structure, also known as the master private key (xPRIV).  

To clarify, private and public keys are a mix of letters and numbers, and they are case sensitive too.  the sheer length of the number makes it easy to get wrong, and just one simple mistake could keep you from being able to recover your funds. Simply, a private key is not easy for a human to read and that often leads to sloppy mistakes. 

With so much value on the line, crypto wallets must move forward to help users manage their assets effectively. And that’s exactly what BIP-39 did: introduce a way to restore your accounts using something more humanly readable than a private key.

But how does it work exactly?

How does BIP-39 work?

Bip-39 introduced a way to back up your wallet using a mnemonic rather than a long and complicated master private key. Essentially it’s a standardized method that translates the entropy, the code your private keys are made from, into human-readable words. 

To explain, when a BIP-39 compatible wallet is set up, it generates a long random number called the entropy. The entropy is in binary form, meaning it is a long string of 0s and 1s. Recording this string is even more complicated than just a private key, thus BIP-39 established a standardized way to translate that binary code into a phrase that’s more humanly readable.

The format they decided on was a string of 12-24 English words. This phrase is simply a translation of the entropy into a readable format, but it contains the same information. For example, if the entropy is 128 bits long, then it would include 12 words and if the entropy is 256 bits long, it would include 24 words instead. 

Once translated, the entropy becomes a mnemonic: a series of words. However, in the crypto world, this is more often referred to as a secret recovery phrase or seed phrase.

What is a Seed Phrase?

A seed phrase is simply the mnemonic that allows you to restore all of the accounts in your crypto wallet. If you have a crypto wallet of your own, you’ll know that your seed phrase was displayed when you first set it up. And you should have written it down if you were hoping to keep an option open to restore your accounts.

The length of your seed phrase will differ depending on the wallet you choose, but typically you’ll find it will contain either 12 or 24 words. This set of words is chosen from a list of a possible 2048 English words specified in BIP-39, specifically chosen as they don’t share four of the same letters. This makes it statistically impossible to gain access to another account by filling in the wrong information. 

Today, most wallets use an HD structure and are recoverable using a seed phrase. And it’s not just for Bitcoin wallets, BIP-39 inspired many other networks to implement the same mechanism. This also means it’s easy to recover your wallet on any platform you like and swap wallet providers with ease.

Understanding the importance of your Seed Phrase

The bottom line is: that anyone with access to your seed phrase has access to your entire wallet. While the introduction of seed phrases made managing multiple accounts and restoring your wallet much easier, it also introduced a new attack vector. Why would a scammer bother trying to extract your private keys when they can find out your seed phrase and access every account associated with it? 

Protecting your seed phrase is of the utmost importance: if you don’t, you won’t have any assets left to protect. With so much resting on that one phrase, how you store it deserves serious consideration. Thankfully, several solutions are aiming to help you secure your seed phrase with maximum peace of mind. One of the most convenient ways is by using accessories like the Cryptosteel Capsule Solo and the Billfodl. Both of these products allow you to record your seed phrase on a steel backup, making it resistant to fire and water damage. If you want to create a reliable backup, you can also sign up for Ledger’s paid optional service Ledger Recover.

But of course, the final barrier is you. Your seed phrase is the master key to your crypto wallet, so make sure you don’t hand it out.

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