A large selection of words may look like random musings online, but within the realm of blockchain, it is the randomness of these phrases, or seed phrases, that have become instrumental in safeguarding crypto assets.
What lies inside a ‘seed phrase,’ how instrumental is it in safeguarding your assets, and what are the best methods to store them? Here, we dive into the complicated world of seed phrases to answer these questions as comprehensively as possible.
What Are Seed Phrases?
First, let’s define seed phrases for the purpose of this article. To most, a seed phrase is a complicated collection of words that acts as security inside the equally complicated world of crypto. However, put more simply, a seed phrase is a random collection of words generated by a crypto wallet when it is first set up.
These random words store the data to access or recover crypto on blockchains or wallets. During a hardware breakdown or a hacking event, these seed phrases — which act like an extra password — come in handy in recovering assets.
Further, the process through which seed phrases are generated is complex. To understand it, we have to look at its foundation: BIP39.
BIP39 is a mnemonic code for generating deterministic keys. It was authored in 2013 by four individuals: Marek Palatinus, Pavol Rusnak, Aaron Voisine, and Sean Bowe.
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A crypto wallet uses BIP39 to generate a string of words to create a mnemonic sentence. This string of words is known as the seed phrase. By converting these words into binary seeds, the wallet generates a random set of keys to encrypt or decrypt cryptocurrency transactions.
Without seed phrases, crypto assets will not have the right security. Therefore, having and storing seed phrases is crucial.
The Importance Of Storing Seed Phrases
Cryptocurrencies are regarded as the most volatile assets not just because of their price action, but also because most people have been negligent when storing them. According to Chainalysis, over 20% of the existing Bitcoin
Furthermore, an article by Business Insider noted that investors were expecting to lose $545 million worth of Bitcoin in 2022 due to forgotten seed phrases.
Therefore, securing your seed phrase is crucial because it is the master key to accessing and controlling your cryptocurrency and digital assets. If your seed phrase is lost or stolen, you risk losing access to your digital wealth permanently, as it cannot be recovered by anyone else. That is why it is important to safeguard key phrases at tangible locations. Trying to memorize them is not enough for most people.
Storage Methods For Seed Phrases
There are multiple ways to store seed phrases. Here, we dive into all the options: Paper-based storage, digital solutions, metal backup options, and hardware wallets.
Paper-Based Storage
The simplest way to store a seed phrase is paper. Get a piece of paper, write the seed phrase on it, and you are done. It’s simple, accessible, and doesn't take any technical know-how. Furthermore, paper-based storage is good for those in a hurry to find a way to store a seed phrase offline.
However, while paper-based storage is convenient, it is not optimal by a long shot. A piece of paper is easy to lose, and when you're traveling with it, there’s no guarantee it will be protected. For that reason, CoinCover has called it one of the “worst” places to store a seed phrase.
Digital Solutions
There are multiple digital solutions available online to store seed phrases. One of them is a software wallet. However, software wallets have been so vulnerable in the past that most crypto enthusiasts stay away from them.
Another digital solution comes in the form of a digital vault. Highly secure and often containing multiple encryptions, a digital vault is a good choice.
However, software-based solutions are still online, which means they take custody of the seed phrase away from the only people who need access to them: Direct users. But that’s not the only problem. Such solutions put too much responsibility of protecting the keys on a single organization, which can give hackers a single point of failure to exploit.
One of the latest examples of this incursion is what happened to LastPass. The popular password manager came under fire in 2023 when its seed phrases were compromised. 80 addresses were stolen, and by the time the attack stopped, 25 victims lost a total of $4.4 million combined.
Such issues have driven people to look into more advanced solutions within the crypto realm. However, these are only meant for advanced users. One of them is SSSS or Shamir's Secret Sharing Scheme.
Shamir's Secret Sharing Scheme, as YouTuber Andy Zofka AKA Crypto Like a Pro (previously Crypto Badger), puts it, is “Something like Horcruxes in Harry Potter.”
In his YouTube video, Zofka explained, “You basically take your seed phrase and split it into multiple elements, or shards. And depending on the type of wallet, for example I am using Keystone Pro, I can select anywhere between 2 to 16 shards. And then I can also decide how many of those shards I need to recover my wallet.”
He continued that if a user wants the most secure option, they must divide the phrase into 16 shards. According to Zofka, more division of the seed phrase will provide more security to the crypto wallet.
Yet, he noted the difficulty when it comes to using this method, saying, “It's also an absolute nightmare if you have to actually do it yourself.”
Simpler and more flexible options like hybrid digital solutions are therefore gaining prominence. They offer high-level encryption, incorporate a hardware element, and keep seed phrases accessible.
These hybrid solutions, according to Cristóbal Rosa, CEO of Cuvex, will become more in vogue with time.
Curious about the features this combination could bring, I reached out for a comment from Rosa, who said, “In the future, cold encryption devices will gain more traction. These devices combine robust security features such as multisig access and high-level encryption while also ensuring that users have access to their seed phrases whenever they want.”
Metal Backup Options
Metal backups are also a good way to go for those looking for a more durable solution, which involves stamping or even engraving the words on a piece of metal.
Some of the best examples encompassing this solution include Attenou, Bitkee, Blockplate, and Bravo Seed Coin. True enthusiasts may want to check out the DIY Bulletproof Bitcoin.
Metal backups are another simple way to store a seed phrase, and many crypto investors, especially the ones who have been with crypto since the beginning, appreciate it.
It is better than paper in terms of durability, but that doesn’t mean it can’t be lost.
Hardware Wallets
Hardware wallets also offer an optimal way to store seed phrases. They generate private keys while allowing users to store their crypto assets offline.
Because of this, hardware wallets are always handy and valuable as they give users true ownership of their assets.
Edu Patel, CEO and Co-founder of Mudrex, told Outlook.com in 2023, “Hardware wallets allow investors to keep their crypto assets safely. For example, when you buy crypto in an exchange, the assets are held in the exchange’s private wallet. You do not have ownership of these holdings. However, when you keep these holdings in a hardware wallet, you have complete ownership of these assets.”
However, even hardware wallets aren’t without their risks.
In late 2023 for example, Cybersecurity firm Unciphered shared a video showing Unciphered’s experts hacking a Trezor T
The Future of Seed Phrase Storage Should Meld Accessibility And Security
The crypto market is changing. More people are aware of it, and more investors consider it a plausible investment — but not all new actors are in the blockchain space to make it better. Malicious elements are in the mix, trying to get hold of other people’s hard-earned crypto.
That has elevated the need to become more secure within the crypto realm and find better places to store seed phrases.
Thankfully, technological developments within this domain have also been great. Multiple digital and hardware solutions have gained prominence. But the ones to choose will depend on preference.
One thing is certain: Even crypto novices should adopt consolidated measures to ensure the safety of their assets, resorting to advanced hybrid methods to secure their seed phrases. This is the best option available today and will help crypto investors hit the intersection of accessibility and security.
