Cryptocurrencies are intrinsically linked to wallets for storing assets and their security. Needless to say, they must be kept safe, but the repercussions of losing your wallet is not as great as losing or revealing your seed phrase. Seed phrases are essentially the most crucial aspect of your crypto wallet and understanding them is integral for any investor. This article explains all you need to know to take a step towards a successful crypto journey.
What is a Seed Phrase?
Crypto wallets have a singular password known as a seed phrase that grants the individual with unfettered access to the contents of the wallet. A seed phrase is a group of 12-24 random words generated during wallet creation which must be kept extremely safe and private. Apart from the PIN used for direct access, a seed phrase acts as a master password mainly for recovery, providing unconstrained access to the crypto wallet to anyone who possesses it. They must be entered exactly in order to enable you the functionality to retrieve your wallet when lost. They are similar to an email’s security question. Anyone who knows the answer to your security question can change your password and in the case of crypto wallets, loss of seed phrase means an absolute loss of the funds secured by the wallet.
How does a Seed Phrase work?
Seed phrases are meant to be easily remembered. The words in the combination are most commonly obtained from a specific word list consisting of 2048 words defined by the Bitcoin Improvement Proposal: BIP 39 [insert the link to the bip39 blog here]. This is the standard that specifies the generation of a valid seed phrase. Regardless, seed phrases can also be self-generated manually or by a hardware wallet in an offline setting which can be considered better since they allow greater configurability and security. A good seed phrase is random which is measured by its entropy so that it cannot be guessed or reverse-engineered.
To generate a seed phrase, a random event is carried out to obtain a 128-bit to 256-bit string for 12 to 24 words respectively, from the word list converted to its binary representation. This random data string is called entropy. So, in a 128-bit entropy, the first 11 bits correspond to the binary representation of the first word and each subsequent 11-bit block corresponds to subsequent words in the sequence. To avoid errors, a 4-bit checksum, formed by hashing the entropy using SHA-256, is appended to the end of the last word. Passing the entropy through the SHA-256 hash function results in a hexadecimal sequence. The first hexadecimal character is converted to a 4-bit binary number, mapped to the wordlist to produce each of the seed phrase words we see.
Seed Phrase vs Private Key
As commonly mistaken, seed phrases are not the same as private keys. Although both of them are generated by a new crypto wallet during setup, require the utmost confidentiality and integral to security of the crypto wallet, they differ in functionality and vulnerabilities.
|SEED PHRASE||PRIVATE KEY|
|They are simple English words, generally selected from a pre-determined list of 2048 words called the BIP39 standard.||They are 256-digit alphanumeric strings that authorize transactions from crypto wallets by anyone who possesses them similar to an ATM card’s PIN|
|Each wallet can have only one seed phrase, unique to it representing all private keys.||A wallet can have unlimited private keys generated from its unique seed phrase.|
|Gives access to all private keys and consequently access to all crypto accounts.||Gives access to only one crypto account. Unique to one blockchain address.|
|You are responsible for its physical management.||Hidden inside wallet and automatically used to sign transactions.|
|Meant to be a backup and is rarely ever used.||Frequently used for every transaction made.|
To learn more about the differences between a private key and seed phrase, check out our blog here.
What happens if you lose your seed phrase?
There are only 2 ways to access your crypto wallet and the assets within: wallet password/PIN and seed phrase. Having either of the two is essential. Most wallets have password/PIN protection that safeguards direct access to your crypto wallet and the funds within. If compromised, the seed phrase is used as a recovery to reset passwords or even retrieve lost wallets. It can also be the other way around, where the seed phrase is either stolen or lost. If stolen, it gives the attacker unconstrained access to your wallet So, you must immediately transfer the assets elsewhere such as another wallet or a cryptocurrency exchange. If lost, you can use your wallet normally but won’t have any means of recovery if a mishap occurs such as forgetting the password. In such cases, it is highly recommended to move your assets elsewhere. Resetting the wallet allows the generation of a new seed phrase. But one must make sure that all funds have been removed from the wallet before resetting it.
Seed Phrase Storage
Seed phrases should never be stored digitally since online exposure presents itself as an attack vector. One common mistake made is the storage of such phrases in plaintext making them easy to access. Even password-protecting them leaves them vulnerable. A common practice is to store seed phrases off the internet, using physical and more traditional methods such as writing on paper or using metal backups. However, storage on paper faces the threat of destruction by natural disasters leading to the use of engraved metals to provide more durability. But even metal backups face the potential of being lost due to various reasons, or for it to be stolen.
Regardless of the form of the backup, seed phrases still pose the risk of a singular point of failure. All current crypto wallet providers rely on a seed phrase based recovery system which must be secured at the user-end. Therefore, Cypherock was designed keeping in mind the current challenges of seed phrase storage, and eliminates the singular point of failure that is currently the model.
Cypherock X1 is the world’s first hardware wallet that does not require a seed phrase backup.Cypherock uses Shamir Secret Sharing (SSS) and EAL 5+ Smart cards along with distributed storage for private key security and prevention of single-point failure enabling security similar to that of offline multisig without their added complexity.
Cypherock X1 consists of an X1 wallet and 4 NFC-enabled X1 cards, with each being geographically distributed and your crypto distributed among these. This allows the decoupling of storage and computation aspects in the hardware wallet. The private keys are generated completely offline and broken into 5 unique secrets, stored on each of the five elements. When any one out of the 4 X1 cards is tapped onto the X1 wallet it results in the reconstruction of the private key allowing you to make a transaction and eliminating the concept of seed phrase backups.
Your crypto is secure even if you lose your wallet and up to any of the 3 cards. The minimum requirement for an attacker to compromise your crypto is by having 2 out of the 5 components and the PIN set by you. The 5 elements being geographically distributed make this practically impossible.
Frequently Asked Questions
- What is a seed phrase? Also called the recovery phrase, it is a group of 12-24 random words generated during wallet creation and it serves as the backup of your crypto wallet. On losing your wallet password, this seed phrase can be used to recover the wallet by providing access to private keys and hence must be kept extremely safe and secretive!
- How does a seed phrase look? They are a string of simple (generally) English words making them easy to remember. Here is an example of a 12 word seed phrase:
- Difference between recovery phrase and private key? A recovery phrase is a set of simple English words, generated by the BIP39 standard used to recover a wallet and is unique to each wallet. A private key is an alphanumeric string used to authorize transactions from crypto wallets and can be unlimited in number for any given wallet, generated from its seed phrase.
- Can a seed phrase be hacked? Yes! Seed phrases can be hacked in multiple ways. The easiest method is their storage as plaintext or protection by a password, which can either be stolen or phished from a user.
- What happens if you lose a seed phrase? On losing your seed phrase, you lose any means of recovering your crypto wallet and the assets secured by the respective wallet. There is no form of recovering crypto in the case access to the wallet is lost.
- How to keep your seed phrase safe? Firstly, keep it away from the internet (offline), since it is the biggest attack vector. Physically storing the seed phrase is another alternative, but is not foolproof. Cypherock X1 provides a solution that does not require seed phrase backups whatsoever, eliminating any issues regarding seed phrase storage.
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Seed phrases are mnemonic words, representing your private keys, used for the recovery of your crypto wallet. The responsibility of its safekeeping falls on the user and being the most important aspect of a crypto wallet, its improper storage poses a major vulnerability and an eventual loss of funds. Cypherock mitigates this concern by eliminating seed phrase backups completely and its associated singular point of failure making it 10x more secure than any other hardware wallet.
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