A seed phrase is a collection of words generated by your bitcoin account and used to get access to the currency associated with it.
Imagine a
wallet to be a cryptocurrency password manager, with the seed phrase serving as
the master password.
You'll have
access to all of the crypto connected with the wallet that created the phrase
as long as you have your seed phrase — even if you delete or lose the wallet.
One of the
fundamental concepts of cryptocurrencies is the concept of "self-sovereignty":
you must be able to obtain your cryptocurrency without having to verify your
identity, and you should never have to rely on a bank or other organisation to
keep it secure.
The
blockchain is the technology that cryptocurrencies like Bitcoin and Ethereum
utilise to do this, since it both saves and secures your crypto via a
peer-to-peer network of computers scattered around the world.
It employs
algorithmically generated passcodes that are only accessible to the
bearer.
The seed is
also used by the wallet to generate private keys, which let you to transmit or
spend your cryptocurrency.
What is
the function of a seed phrase?
A seed phrase
is created automatically when you establish a crypto wallet. The seed phrase is
a lengthy string of random numbers that your wallet uses to generate the
private keys that allow you to send and spend your bitcoin.
Because
humans are better at remembering and engaging with a succession of words, the
seed phrase is delivered to you in word form rather than a large string of
random integers.
However, you
should not rely on your memory to store your seed words. Each seed phrase
is chosen at random from a pool of 2,048 basic phrases.
The seed
phrase concept gained popularity following Bitcoin Improvement Proposal 39 in
2013, which set a standard for a “deterministic wallet” which most wallets
today are in which one seed phrase controlled all of the private keys kept in
the wallet.
Large wallets
are also interoperable thanks to the standard: if you want to move wallets,
simply enter your seed phrase into the new wallet, and your crypto will be
available there.
If you lose
or delete a wallet, you can even rebuild it with just your seed phrase. It is
critical to protect your seed phrase against hackers, phishing attempts, or
just loss.
How do you
keep a seed phrase safe?
There are
several ways for securing seed phrases, which vary depending on how much crypto
you have and how much you prioritise security vs. ease.
One extremely
strong approach to safeguard a seed phrase would be to split it across safe
deposit boxes in several places (ensuring redundancy in case any of the sites
were to fail). Obviously, this is inconvenient.
Some
individuals employ specialist businesses to etch seed words onto long-lasting
materials such as stainless steel.
For many
people, just writing down their seed word and maintaining copies in many secure
locations is a good strategy.
You may opt
into the encrypted Google Drive or iCloud recover-backup function, which saves
an encrypted version of your seed phrase in the cloud, using Coinbase Wallet.
You should
also save your seed phrase somewhere safe and secure. You have your crypto as
long as you have your seed phrase.
If you drop a
hardware wallet on a bus or smash a phone with a software wallet, you won't
lose your crypto - simply insert your seed phrase into a wallet.
What if
you lose your seed phrase?
You lose
access to your crypto if you mistakenly throw out the piece of paper on which
your seed phrase is written, forget which book you hid it in, or die without
passing it on to a successor.
Unless your
seed phrase is stolen, your bitcoin will be safely kept on the blockchain, but
you will not be able to access it. So remember to keep your seed phrase secure.
If you misplace your seed phrase, you will lose access to your cryptocurrency.
Other Possibilities?
Sure. If you
purchase cryptocurrency through Coinbase, you are not required to immediately
transfer it to a separate wallet (and you are free to do so at any time).
As your
holdings expand, you should at least investigate the primary security
alternatives, such as transferring part of your crypto from your main Coinbase
account into a Coinbase Vault, which provides a layer of safety without having
you to manage a seed phrase or private keys.
What is a
seed phrase and a private key?
Private keys
are algorithmically created from the lengthy string of integers represented by
your seed phrase and allow you to transmit or spend some of your Bitcoin,
Ethereum, or any cryptocurrency.
Written By - Tanya C
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