Many of today's crypto wallets now have multiple ways of securely storing and recovering user assets, although users still need to proceed with extreme caution before getting started. One of these is a seed phrase — a standard method used mainly by non-custodial crypto wallets to protect and recover assets.

Key Takeaways

• A seed phrase is the only way users can recover their stored cryptocurrency after losing access to their wallet.
• Wallet holders must enter the words in seed phrases in the correct sequence.
• Crypto holders must keep their seed phrases securely, preferably offline with only physical copies.
• Words and their arrangement within the seed phrase are unchangeable.
• If a wallet gets damaged or lost, the owner can use their seed phrase with a different BIP39-compatible wallet to access their cryptocurrencies.

What Is a Seed Phrase?

A seed phrase is a randomly generated cryptographic sequence of words that serve as a password for access to a crypto wallet. This seed phrase is the key that allows users to access their stored cryptocurrency. The idea of using a mnemonic series of words instead of a mixture of random numbers and letters is to make it easier for users to correctly record and also reduce the chances of human error.

The size of a seed phrase can vary from 12-24 words, all from a bank of 2048 possible words that include options such as "eager," "rich," "one," "river," or "write." Notably, AtomicDEX Desktop generates a 24-word seed phrase for each crypto wallet, while AtomicDEX Mobile generates a 12-word seed phrase. Wallet owners must input the words in the correct order, or they will be unable to recover their crypto.

How Does a Seed Phrase Work?

A seed phrase is the master key of a crypto wallet. It provides users with access to their private keys, which verifies that the holder of the seed phrase controls a specific crypto address and can therefore do whatever they wish with its stored funds. Having access to a seed phrase is equivalent to holding a debit or credit card's details and PIN. In the same way, anyone else who has access to this phrase can move all crypto assets to another crypto address. If users no longer have their log in details and cannot retrieve their seed phrase, all funds in their wallets may be lost forever.

Tips for Safely Storing Your Seed Phrase

Given that a seed phrase is a list of up to 24 randomly generated and sequential words, it is near impossible for hackers to obtain it with current technology.

Trying to guess all the words in a mnemonic phrase also requires guessing them in the correct order. Therefore, the only way for hackers to access an account is to directly obtain the phrase from the user or via other means, such as a phishing email. Practices that help safely store seed phrases include:

• Physically writing the phrase on two different notes that are securely locked away. This is better than digitally storing it on a mobile device's notepad or taking a screenshot. Digital storage makes access easier for hackers.
• Storing physical copies of the seed phrase somewhere secure but accessible, like a vault. Wallet holders should store their seed phrases where others can not easily find them. However, the storage location should not be so obscure that it is easy to forget.
• Ensuring that access to the storage location is limited to the wallet holder and a few other deeply trusted persons. No crypto exchange, wallet, or representative, will ever ask for the seed phrase. Anyone who does is likely a scammer.
• Avoiding all phishing attempts by ignoring unknown links and out-of-the-blue emails. Users should remember that phishing is a common way hackers obtain people's seed phrases.
• Using specialized services to engrave the seed phrase into durable materials like stainless steel, which is then stored in a secure location.

Private Key vs. Seed Phrase: What's the Difference?

Private keys and seed phrases are two terms that come up in similar conversations. Although both ensure the security of assets in crypto wallets, they are quite different. A private key is an alphanumeric string that allows access to a specific crypto address on a blockchain network and authorizes wallet transactions. On the other hand, a seed phrase is a backup phrase that allows wallet owners to regain access to their crypto wallets if they ever lose passwords, private keys, or other login details.

Using a Seed Phrase on Different Wallets

There are various types of cryptocurrency wallets. Some wallets only hold a single type of crypto asset, while others offer a wide selection of cryptocurrencies. Seed phrases allow users to switch between wallet makes and models without losing any assets. However, this is only possible if the wallets are compatible with Bitcoin Improvement Proposal 39 (BIP39), which created the standard for deterministic wallets.

Anyone can use their seed phrase with any other wallet if both are BIP39 compatible. For example, a user buys an HD wallet like the Trezor wallet, gets a seed phrase, and then subsequently loses or damages the wallet. The user could then buy a brand new wallet, like a Ledger wallet, and use the exact seed phrase to recover the contents of the previous wallet.

The Importance of Seed Phrases In DeFi

Overall, a seed phrase is currently one of the most powerful tools in the DeFi space. It is the first step in setting up a safe, secure, and reliable crypto wallet. More importantly, it is the only way to recover funds if a user loses access to their crypto wallets. It is worth noting that the words and sequence in a seed phrase remain the same. No crypto exchange or wallet can switch it, nor can a random person, whether they are online or offline. This immutability only further shows the importance of the phrase and provides more reasons for users to protect it as securely as possible.

Try AtomicDEX Wallet

AtomicDEX is a non-custodial multi-coin wallet, cross-chain/protocol bridge, and cross-chain/protocol DEX rolled into one app. AtomicDEX is available as a desktop wallet and a mobile wallet. Store BTC, ETH, BNB, MATIC, and many other cryptocurrencies in your own wallet. When you're ready to trade, AtomicDEX supports cross-chain trading. Your keys, your coins.