BIP-39: The Low-Key Guardian of your Crypto Freedom

Beginner Feb 10, 2022 · 6 min read

Key Takeaways:
— By providing a public, digital ledger, blockchain decentralized our monetary system – users can now own and manage their assets without relying on banks and central authorities

—The essential elements for doing this are your recovery phrase and a crypto wallet – but if each wallet accepted the phrase in a different format, we would once again have a centralized system, with our blockchain access being restricted via the wallet provider

— The BIP-39 standard is put in place by crypto wallet providers to generate and accept private keys in a consistent format: as a 12/24-words randomly generated “recovery phrase” or “seed phrase” 

— This standard guarantees your freedom by ensuring you can restore your private keys using a wide variety of different wallet

If you don’t know about BIP-39 then you absolutely should – it’s an essential feature of the blockchain ecosystem, and your Ledger Nano.

Decentralization is what makes blockchain so revolutionary – its open, public infrastructure means no more restrictions, no more red tape and nobody standing in the way of us accessing and managing our money…right?

In fact, you might be surprised to learn just how easily that freedom could have been limited. Here, we explain the key elements of accessing the blockchain – and the little known agreement that ensures your freedom.

Internet of Information: a Centralized System

Web 2.0 is often referred to as the internet of information. Its primary function is being able to manage data – you can create content, send and receive emails and make a meme that will go viral within days, all using the infrastructure of the web.

But where Web 2.0 fell short was its ability to manage value. Sending an email is one thing, but being able to send value, or even own digital value, was impossible without a middleman.

Every monetary transaction needed a bank, both to keep track of the value being sent and received, and to ensure the transaction took place with certainty and without manipulation by either party. In short – anyone who needed to use money (and that’s…all of us) was tied to a bank. It sounds crazy when you think about it, right?

Internet of Ownership: a Public, Decentralized Ledger

Blockchain changed all that. It enabled users to manage their assets autonomously, by adding a layer of infrastructure that could keep a ledger of value transactions made within it. In effect, it transformed digital space into infinite, safe public transport for your money, where you no longer need to rely on central entities like banks to “manage” your transactions. And most important of all – everyone has access.

The Essential Elements of your Blockchain Access

Sounds great, right? it is. Enabling regular people to manage their assets without a middleman is not just about money, it’s about restoring a balance of power.

But the fact is, in order to access this new technology-based infrastructure, there are still one or two other things you need – and how those things are managed has some huge implications, both for us as individuals and for the system as a whole. 

So let’s take a look at wallets and recovery phrases, and how the relationship between them is ensuring that blockchain remains accessible to all.

Your Crypto Wallet: Fluent in Blockchain

You may think that your crypto journey begins the moment you buy your first crypto – but actually, the story started just before that, when you set up your crypto wallet. 

A crypto wallet is basically an interface designed to communicate with the blockchain; it’s where you store your private keys, control your cryptos and see your balance. You can think of crypto wallets as a medium between you and the blockchain, translating your requests in a way the system can understand and execute. No matter what blockchain network you’re using, a wallet is an essential point of entry.

But if you need a wallet in order to access the network, doesn’t this mean the system is centralized around your wallet provider? 

That’s where your recovery phrase comes in.

Your Recovery Phrase: Master Key to your Blockchain Assets

Whenever you generate a crypto wallet, you also generate a recovery phrase, which is cryptographically linked to all the private keys you were storing in that wallet. The point of this phrase is to enable you to recover all of your accounts independently of that wallet, should you lose access to it. But in order for this recovery phrase to have utility, it needs to fulfill two criteria:

  • It must be practical for users to record and store.
  • And it must be recognised by other wallet providers

This is where the BIP-39 standard becomes an essential part of the blockchain system.

What is the BIP-39 Standard?

In the scarily mathematical world of blockchain, the information you need to know isn’t always practical in its raw form. Recovery phrases don’t start out as words; really, they are generated as strings of 256 1’s and 0’s, which are tied to your private keys.

But for users, this isn’t a practical form of back-up –  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. So instead, Bitcoin Improvement Proposal 39 suggested that it be expressed as a more digestible set of words instead.

Practicality and Security

If you have a crypto wallet of your own, you’ll know that your recovery phrase (or seed phrase) was displayed when you first set up, as a series of 24 words. These words might have seemed random, but trust us, they’re absolutely not. They’re part of a database of 2048 words, which have all been specially selected because they don’t share the same four letters, and they increase the security of your crypto by providing a more practical format for your recovery phrase that you’re unlikely to get wrong.

Decentralization and Interoperability

But BIP-39 also serves another important purpose: it enables you to  access your crypto from almost any wallet. 

Imagine you have a sim card, but you can only use it on one type of phone. The whole point of a sim card is to let you access a public telecoms network, but if you can only use your sim card in one type of phone – really, it’s not public anymore. You’re tied to the phone provider. When you think about it, it really doesn’t take much for a free system to become centralized around very few entities, and that’s why details are so important.

Crypto wallets are a similar story. The blockchain itself is public, but needs to be accessed using a wallet interface. So if each interface uses a different recovery phrase format, you’d be tied to just one provider – which is a return to the centralization blockchain was designed to remedy.

By providing a recovery phrase format that is universally accepted, BIP-39 is not just about practicality – it also ensures your control of your funds can’t be compromised by a gatekeeper.

Tools to Help You Stay Safe

While blockchain puts the power back in your hands, it also endows you with the huge responsibility of safeguarding your all-important recovery phrase. This could simply mean writing it down and storing it securely, but with so much resting on that one phrase, how you store it deserves serious consideration.

Thankfully, there are a number of solutions aiming to help you secure your recovery 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 these products allow you to record your recovery phrase on a steel back-up, making it resistant to fire, water damage and other physical threats to your crypto access.

Ledger and BIP-39

At Ledger, all of our hardware wallets generate your seed phrase in accordance with the BIP-39 format, meaning you’ll have both the security of Ledger – and the freedom to move away from it

Imagine you are traveling with your Ledger Nano X hardware wallet on a vacation. You come back to your hotel only to realize that you dropped your Nano. Not a problem – with your 24 word mnemonic seed phrase stored carefully, you can simply recover all the private keys that were secured by your Nano via another wallet, or until you can replace your Nano with a new one.

Web 3 and Our Interoperable Future

Web3 values are at the very heart of Ledger’s mission. That means putting decentralization above profit and ensuring your blockchain access stays decentralized, no matter which wallet you’re using. 

Security does not mean compromising your freedom. When you use a Ledger Nano, you’re never tied to Ledger. Instead, we’ve taken measures to ensure you have the tools you need to manage your crypto – both within the safety of our infrastructure, and independently of it.

Knowledge is power.

Get free – and keep on learning! The name of the game is decentralization, and here’s an episode of School of Block all about just that.

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