What is a seed phrase and how to use it?

9.14.2022

If you're unfamiliar with a "seed phrase" term, we have you covered. Keep reading this article, and we will explain what a seed phrase is, in which cases you may need it and how to use it. If it sounds difficult in hindsight, be rest assured - it's easier to get along with the topic than it may seem.

The seed phrase is one of the central terms in the cryptocurrency space. Sooner or later, any cryptocurrency user will face an event when working with a seed phrase will become necessary. If you have ever created a cryptocurrency wallet, you must have learned about the seed phrase, but if not, we will show you how to do it below.

What is a seed phrase?

A seed phrase is a collection of words that work as a master password to your cryptocurrency holdings. Seed phrases are generated via a cryptocurrency wallet.

Try to paint in your mind the following: there is a vast thing we call blockchain, which has tons of addresses. Addresses on a blockchain designate that cryptocurrency moved - either received or sent. Think of it as a ledger or bank operations. A regular bank account allows one to receive or send money. Of course, today, we don't usually go to a physical bank but use convenient bank apps.

Similarly, a cryptocurrency wallet is an interface to your coins and operations. Now imagine typing a PIN code while accessing funds on a credit card in an ATM. Every cryptocurrency wallet is protected by a PIN as well. If you lose your credit card or would like to have an additional card for your account, you have to contact your bank to issue a new one. In the cryptocurrency world, where self-sovereignty is one of the key pillars, you manage your own bank - with a seed phrase.

It is essential to highlight that cryptocurrency is stored on a blockchain, not in a wallet. So, for example, if you lose your wallet, you will be able to recover funds associated with it in a different application or on another device.

Do I need to type in a seed phrase whenever accessing my cryptocurrency wallet?

Not at all. Remember we mentioned PIN codes? The truth is, accessing your wallet happens with the help of a PIN code you set, just like in your bank or Vipps app. You get complete functionality to manage your cryptocurrency holdings with a seed phrase. A seed phrase is all you need to restore your wallet when you have nothing else.

The beauty of a seed phrase is that you use it in a few cases only:

  • You are generating a wallet. Let's say you want to create a bitcoin wallet to store some sats. You can use one of the desktop, mobile or hardware wallets. 12 (or 24) words will prompt you during this process. Once you have memorized the words, you have a backup.
  • You are restoring a wallet. You may need to restore your wallet to a different application or device. For example, you generated a wallet in a mobile app but now want to access your cryptocurrency holding from a desktop. You can easily pull up a wallet by entering your seed phrase.
  • You have deleted a wallet application. Don't panic; your cryptocurrency is still on a blockchain. The wallet application and the wallet itself are interfaces that give you access to your coins stored on a blockchain. If you delete an application, use your seed phrase to restore your wallet.
  • You have lost your wallet. If your phone or computer was lost or stolen, don't freak out. Keep your head cold and restore your wallet with a seed phrase on a different device as soon as possible.

How does a typical seed phrase look?

The seed phrase consists of 12 or 24 words set in a particular order. Just as with longer pins, you can decide which level of complexity you want to introduce - memorize 12 or 24 words. Here is an imaginary 12-word seed phrase:

transmit university neology dispute impossible heart curtain medicine elector hike trackman impudent carfare

As you can see, it is difficult to guess this sequence, and the chances of a hacker brute-forcing your seed phrase are close to 0. Roughly, it would take ⅓ of the time of the planet Earth's existence to guess such a combination.

How do I memorize and store my seed phrase?

It may seem complicated and unnecessary, but it is worth remembering your seed phrase. If you decide to manage your fortune, memorizing and backing it up is a must for your good and the future of your holdings.

Brainwallet

Back in the day, cryptocurrency users stored seed phrases in their heads. Still used by some, it is called a "brainwallet." The brainwallet option is for those 100% sure of their excellent memory. Imagine what a tragedy it is to forget it? Nevertheless, if all other backup options fail you, you still need to remember your seed phrase.

Paper

Another option is to write down a seed phrase on paper. What if someone finds this paper? It gets lost, ripped, or burned? Despite obvious risks, it is considered one of the easiest to use and safe options. When buying some hardware wallets, a piece of paper comes in the packaging. Many experts recommend keeping it simple, avoiding unnecessary complexity, and suggesting that paper is an excellent option for most cryptocurrency users.

USB drive

While it may seem like a viable option, there are significant risks. Storing seed phrases digitally doesn't mean complete or better safety. USB drives can physically break and be subject to data corruption. Besides, a USB drive needs a laptop. It is strictly recommended not to expose seed phrases to any devices connected to the internet, as you know now.

Metal

Thankfully, new backup options appear that offer better longevity than paper as time goes by. A few companies offer different sets of steel letters to make up words, engraving, or metal cards.

There is genuinely no best way to store your seed phrase, and it is very individual what works better for one person or another. Still, common sense indicates only you shall know what your seed phrase is and where it's stored.

There are hard NO's when it comes to storing seed phrases:

  • Don't take a picture of it.
  • Don't store it in a password manager.
  • Don't store it on anything connected to the internet.
  • Don't use any online seed phrase recovery websites.

As mentioned above, stay diligent and don't share your seed phrase with anyone. Be suspicious if someone offers you help in restoring your wallet. If someone finds out about your seed phrase, they can restore your wallet and transfer funds to another address.

How do I manage my cryptocurrency wallet?

Suppose you're excited about cryptocurrency, actively exploring this space, or tipping your toes. Try generating and recovering a cryptocurrency wallet today and get familiar with a seed phrase phenomenon.

Following our video walkthroughs, you will know how to generate and restore a cryptocurrency wallet in less than 5 minutes with Blockstream's Green. Blockstream Green is one of the industry's leading Bitcoin wallets. It is incredibly intuitive and won't leave you confused.

Once you have a wallet, try to restore it on another device. Imagine you have bought some bitcoin on nbx.com and sent it to your newly created wallet from the desktop. You decided to pull up this wallet to your phone as well. Restoring a wallet takes approximately 2 minutes.

I'm not ready to manage my crypto funds independently yet. What are my options?

Keeping your seed phrase safe from hackers, phishing attacks, or loss is essential. Some cryptocurrency users may find it challenging to manage a seed phrase at first. In this case, you can store your coins on NBX. If you have bought any coins on nbx.com, you don't have to move them to your wallet right away. Take your time until you get confident with managing your funds while your coins are insured with NBX.

As the crypto industry grows, providing reliable security to our clients has never been more critical. Presently, the standard for cryptocurrency exchanges is to secure over 90% of customer funds offline in hardware wallets. In 2020 NBX introduced the Ledger Vault insurance technology to keep customer funds offline and insured through a $150 million insurance pool.

Credits: Image by regularguy.eth

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