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Introduction
As a Bitcoin holder, understanding seed phrases is important for securely managing and protecting your Bitcoin. A seed phrase, also known as a recovery phrase or mnemonic phrase, is the key to accessing and restoring your entire Bitcoin wallet. Losing or compromising your seed phrase could lead to permanent loss of funds, which is why it’s essential to understand how they work and how to keep them safe.
What is a Bitcoin Seed Phrase?
A Bitcoin seed phrase is a random sequence of words that is required to access your Bitcoin wallet. It typically consists of 12 or 24 words from a predefined list of 2,048 words established by the Bitcoin Improvement Proposal 39 (BIP39) standard. These words act as a backup for your Bitcoin wallet, allowing you to recover all your private keys, public keys, and associated Bitcoin addresses.
How Do Bitcoin Seed Phrases Work?
Seed phrases are generated whenever you create a new hierarchical-deterministic (HD) Bitcoin wallet, whether it's a software wallet or a hardware wallet like Ledger or Trezor. Here's a simplified explanation of how seed phrases work:
When you set up a new HD Bitcoin wallet, a random seed is generated, which is a long string of random digits.
This seed is then converted into a human-readable seed phrase, consisting of 12 or 24 words from the BIP39 word list.
The seed is used to derive the master private key, which generates all the other private keys in your wallet.
Private keys are then used to generate corresponding public keys and Bitcoin addresses.
Essentially, your seed phrase is a backup of your entire wallet. If you ever lose access to your wallet or your hardware device fails, you can recover your funds by restoring your seed phrase on a new device or wallet interface.
The Importance of Backing Up and Securing Seed Phrases
Wallet manufacturers strongly emphasize the importance of writing down your seed phrase on paper and storing it safely. In case of a lost or stolen device, a forgotten PIN, or compatibility issues due to firmware updates, your seed phrase is the fail-safe that allows you to regain access to your Bitcoin.
If your seed phrase is protecting a substantial amount of wealth, it's considered best practice to treat it like the valuable asset it is. This could mean storing it in a fireproof safe, a bank safe deposit box, or even using specialized fireproof metal devices designed specifically for seed phrase backups. For added security, you can also consider using a multisig solution, which distributes and backs up your seed phrases across multiple locations, eliminating single points of failure.
How Secure Are Seed Phrases?
Seed phrases are incredibly secure, thanks to the sheer number of possible combinations. With the BIP39 standard using 2,048 unique words, a 12-word seed phrase has over 5.4 x 10^39 possible combinations, and a 24-word seed phrase has over 1.6 x 10^77 combinations. To put this into perspective, the estimated number of atoms in the observable universe is around 10^80.
This immense number of combinations makes it practically impossible for anyone to guess your seed phrase, as long as it was generated with proper entropy (true randomness). Even the world's most powerful supercomputers wouldn’t be able to brute-force a seed phrase by guessing word combinations.
Restoring Seed Phrases Across Different Wallet Manufacturers
One of the key benefits of seed phrases is their interoperability across different wallet manufacturers that implement the BIP39 standard properly. This means you can eliminate reliance on a single wallet maker as a trusted party and a single point of failure.
If anything goes wrong with your current wallet, such as a bug, compatibility issue, or the company going out of business, you can simply restore your seed phrase on a compatible device from a different manufacturer. Popular hardware wallets support the BIP39 standard and have well-documented external recovery processes.
Changing Existing Seed Phrases
While you can't directly "change" an existing seed phrase like you would a password, you can generate a new seed phrase and move your funds to a new address governed by this new seed phrase. This should be done if you suspect your existing seed phrase has been compromised, as anyone with access to your seed phrase can access and spend your Bitcoin.
To change your seed phrase, follow these steps:
Generate a new seed phrase by creating a new wallet.
Send your Bitcoin from the addresses associated with your old seed phrase to the new addresses associated with the new seed phrase.
Once the transaction is confirmed, you can safely discard the old seed phrase and rely solely on the new one.
Multisig and Collaborative Custody
In a multisignature (multisig) or collaborative custody setup, your seed phrase represents access to one of multiple keys required to spend your Bitcoin. This means that a single compromised seed phrase does not give an attacker full control over your funds, as they would need access to additional keys to meet the spending threshold.
Multisig helps eliminate the seed phrase as a single point of failure. By distributing and backing up your seed phrases across multiple locations and devices, you can enjoy the benefits of redundancy and increased security without relying on a single point of failure.
Conclusion
Understanding and properly securing your Bitcoin seed phrase is essential for anyone self-custodying their cryptocurrency assets. By following best practices for seed phrase management, such as backing up your seed phrase in multiple secure locations and considering a multisig solution, you can significantly reduce the risk of losing access to your funds due to lost devices, hardware failures, or compromised seed phrases.
About Arch
Arch is building a next-gen wealth management platform for individuals holding alternative assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services, powered by BitGo.