Seed Phrase

The seed phrase, also known as a mnemonic or recovery phrase, is a sequence of words used to recover a cryptocurrency wallet. This phrase consists of 12 to 24 words chosen from a specific list defined by the BIP39 standard. The primary purpose of the seed phrase is to allow users to regain access to their wallet in case of emergencies, such as device loss or failure.

The seed phrase acts as a backup code for the wallet. If this phrase is lost, it is usually impossible to recover the funds, making it crucial for users to store it securely. While the seed phrase helps in recovering the wallet, it is not explicitly designed to protect against cyber-attacks. Instead, it ensures that the user's private keys, which control their funds, can be restored.

The seed phrase is an essential element of crypto wallets, used for recovery during emergencies or cyber disasters. It is a sequence of 12, 18, or 24 words selected from a predefined list of 2048 words. Each word in this list corresponds to a specific byte value. For instance, a 12-word recovery phrase provides 128 bits of security.

The creation of a recovery phrase begins with generating entropy, a measure of randomness. This entropy determines the security of the seed phrase, making it difficult to guess. Next, a checksum is computed from the entropy. This checksum is added to the entropy to create a final binary sequence, which is then divided into sections corresponding to the number of words (e.g., 12, 18, or 24). Each section maps to a word from the predefined list, forming the mnemonic phrase.

Several crypto wallets use algorithms to generate seed phrases. BIP39 is a widely used standard for this purpose. It defines the word list and the process for creating the seed phrase. BIP39 supports multiple languages, including English, Japanese, Korean, Spanish, Italian, Chinese, French, and Czech.

Let us look at some examples to help comprehend the concept better.

Example #1

Suppose Christine is a crypto user who holds more than 500 tokens in her wallet, which uses a seed phrase for recovery. Her wallet provides public and private keys along with a recovery phrase, acting as a backup if Christine loses her private keys. Upon creating the wallet, she received a 12-word seed phrase:

"Density cinema artist deal beach include filter exchange holiday husk large jury."

This seed phrase allows the wallet to generate her private and public keys. With these keys, Christine began trading her crypto tokens with her peers and friends. However, after some time, hackers exploited the platform, and Christine lost her private keys. The only way to recover her account was by using her 12-word seed phrase. Unfortunately, she lost her recovery phrase as well. As a result, her coins, worth $50,000, became irrecoverable

Example #2

According to crypto updates as of April 2023, Bitcoin enthusiast Andrew Fraser successfully cracked a 12-word seed phrase in just under 30 minutes. This was part of a challenge initiated by Bitcoin educator "Wicked Bitcoin," who shared the seed phrase on X (formerly Twitter) with the words scrambled to increase the difficulty. Fraser used the BTCrecover tool available on GitHub to crack the code and won a bounty of 100,000 Satoshi (equal to approximately $29).

Mnemonic phrases hold extreme value in the creation of private keys and play a vital role in wallet architecture. Here is their significance:

• Restoration of funds: Recovery phrases are primarily used in crypto wallets to recover funds. They act as a master key for crypto assets. These phrases are not stored in the wallets but are provided to users, who must safeguard them. During hacking events or device loss, users can enter the recovery phrase into a new device to restore their crypto tokens.
• Private key creation: Seed phrases are crucial in the private critical development process. Crypto wallets use these phrases to generate private keys. If a user loses access to their private keys, they can use the seed phrase to restore the wallet. By logging into the wallet on a device and entering the backup code, the wallet is reactivated, and users can access their private keys. This code also allows users to switch wallets between different devices, enhancing the security of their assets.

Although recovery phrases provide essential recovery options for crypto wallets, they come with certain risks:

• Loss of Crypto Assets: The foremost risk associated with recovery phrases is the potential loss of stored funds if the phrase is forgotten or stolen. If a person loses the recovery phrase, it becomes impossible to recover their crypto tokens. Malicious actors who hack the code can gain access to the funds, rendering the associated keys irrecoverable.
• Unauthorized Access by Hackers: Recovery phrases are intended for use only by the wallet owner and should not be shared with anyone. However, during emergencies, a person might share their phrase with others or reveal it to untrustworthy individuals. This can lead to unauthorized access, where hackers exploit the private key, access the funds, and compromise the hardware or software system. If the owner tries to reactivate the account using the compromised phrase, the wallet may have zero balance.

Recovery phrases are crucial for the security and privacy of seed phrase wallets. Losing or mishandling these phrases creates opportunities for malicious actors and phishing attacks, leading to permanent loss of funds. To enhance privacy and security, crypto users should store their recovery phrases safely, such as on a piece of paper kept in a secure location or a safe deposit box.

Although seed phrases, private keys, and passphrases have similar functions to perform, they have a thin line of difference. Let us look at them: