What is a seed phrase in crypto and how do you store it securely?

Seed phrase meaning and origin

A seed phrase, also known as a recovery phrase, mnemonic phrase or backup phrase, is a sequence of 12 to 24 words that serves as the master key to your cryptocurrency wallet. This human-readable list of words is all the information you need to recover your digital assets in the event that you lose access to your wallet. 

You can think of it as the ultimate backup for your entire crypto holdings, because whoever controls the seed phrase, controls the funds.

The concept of seed phrases originates from Bitcoin Improvement Proposal 39 (BIP-39), which was introduced in 2013 primarily by Marek Palatinus. BIP-39 established a standardized method for generating mnemonic codes, drawing from a carefully curated list of 2048 English words. 

This list was designed to minimize any potential confusion by avoiding similar sounding words and keeping all words between four and eight letters long. This standardization means that wallets from different providers can implement the same recovery mechanism, giving users portability and flexibility.

Seed phrases revolutionized cryptocurrency wallet management by replacing complex hexadecimal private keys with memorable words. Instead of having to back up dozens of individual private keys for different addresses, users could instead write down a single seed phrase during wallet creation. Inarguably, this has helped cryptocurrency to become more mainstream.

Importantly, the seed phrase generates a deterministic wallet structure, meaning the same phrase will always produce an identical set of addresses and private keys across any compatible wallet software. 

The importance of seed phrases can’t be overstated. They represent the difference between permanent access to your funds and irreversible loss. Without proper backup of your seed phrase, hardware failure, software corruption or device loss could mean losing your cryptocurrency forever.

How seed phrases work

Seed phrases operate through a sophisticated cryptographic process that transforms words into secure wallet credentials:

1. When you create a new wallet, it generates a random number called entropy (typically 128 or 256 bits of randomness).
2. This entropy is then converted into your seed phrase using the BIP-39 standard. A 128-bit entropy produces a 12-word phrase, while a 256-bit entropy generates 24 words.
3. Each word corresponds to a specific number in the BIP-39 wordlist, encoding the random data in a human-readable format.
4. Once generated, the seed phrase undergoes a process called key derivation.
5. The words are combined with an optional passphrase (sometimes called the ‘25th word’) and run through a key derivation function called PBKDF2 with 2048 rounds of SHA-512 hashing.
6. This computationally intensive process produces a 512-bit seed, which becomes the foundation for your wallet structure.
7. From this master seed, a hierarchical deterministic (HD) wallet can derive practically unlimited private keys and corresponding public addresses.
8. The hierarchical structure follows another standard called BIP-32, which creates a tree of keys.
9. The master seed generates a master private key and master chain code.
10. From these, child keys branch off using specific derivation paths, commonly following BIP-44 standards that organize keys by cryptocurrency type, account number and address index.

This means a single seed phrase can manage Bitcoin addresses, Ethereum accounts and other cryptocurrency addresses simultaneously.

Each derived key maintains cryptographic independence while remaining recoverable from the original seed phrase. This wallet architecture explains why you can generate new receiving addresses without creating new backups; every address remains accessible through your original seed phrase, making it the single point of security for your entire portfolio.

Private key vs seed phrase: What's the difference?

Private keys and seed phrases are both critical cryptocurrency security elements, but they serve different purposes and operate at different levels of your wallet architecture:

1. A private key is a single, unique cryptographic key (typically a 256-bit number) that corresponds to one specific cryptocurrency address. It provides direct access to sign transactions and spend funds associated with that particular address. Private keys are usually represented as long hexadecimal strings (64 characters) or sometimes as Wallet Import Format (WIF) codes, neither of which are particularly user-friendly nor easy to remember.
2. A seed phrase sits at a higher level in the wallet hierarchy. Rather than controlling a single address, it generates and controls all the private keys in your hierarchical deterministic wallet. One seed phrase can produce thousands or millions of unique private keys for different addresses across multiple blockchain networks. 

This makes seed phrases far more powerful, and therefore far more critical to protect. If someone gains access to a single private key, they can steal funds from one address, which is unlikely to be disastrous as most investors keep funds distributed across multiple addresses. But if they access your seed phrase, they can drain your entire portfolio across all derived addresses.

Their security models also differ in practical application. Private keys were common in early Bitcoin wallets where users managed individual keys for each address, a cumbersome approach requiring multiple backups. 

Modern wallets predominantly use seed phrases with HD wallet structures, simplifying backup and recovery. In non-custodial wallets, you maintain complete control over either your private keys or seed phrase, meaning you're solely responsible for their security. This self-custody model contrasts with custodial services where a third party holds these credentials. 

Understanding this distinction is crucial. When you control your seed phrase or private keys, you have ownership of your cryptocurrency. When someone else controls them, you're trusting 

them with your assets.

Where and how to store your crypto seed phrase

Proper storage of your seed phrase is arguably the most important security decision you'll make as a cryptocurrency holder. The most common method is paper backup, which means writing down your seed phrase on physical paper with clear, legible handwriting. A common practice is to use acid-free, archival quality paper and to write in permanent ink. 

You can store this paper in a waterproof, fireproof container such as a home safe or bank safety deposit box. However, paper has vulnerabilities. It can burn, deteriorate or be damaged by water, even if laminated. 

However, metal wallet solutions offer superior protection. These products range from classic stainless steel plates to titanium capsules, and allow you to stamp or engrave your seed words in a format that can survive extreme conditions including fire, flooding and corrosion. 

While more expensive than paper, an additional cost of as little as $100 can provide significant peace of mind for long-term storage. Some users even create their own laser engraved metal plates or purchase purpose built products like Cryptosteel or Billfodl.

It’s also common for long-term crypto investors to use a multi-copy strategy. Consider creating two or three copies of your seed phrase and storing them in geographically separate secure locations (for example, one in a home safe, another in a bank vault and perhaps a third with a trusted family member in a different city). 

This approach protects against localized disasters while multiplying points of failure. You might also consider using a Shamir Secret Sharing scheme for advanced security, which splits your seed into multiple shares where a threshold number (like two of three) is required for recovery.

Critically, digital and cloud storage are generally  avoided entirely for unencrypted seed phrases. Screenshots, photos, email drafts, password managers and cloud documents all present attack surfaces for hackers. Even encrypted digital storage carries risks from keyloggers, malware or compromised devices. 

If you must store digitally, consider using encryption with a strong passphrase separate from your normal passwords, and keep the encrypted file offline on a dedicated USB drive stored as securely as paper backups. But offline solutions remain superior from a security perspective.

Risks of losing or exposing your seed phrase

The consequences of losing or exposing your seed phrase are absolute and irreversible. 

Loss of your seed phrase means permanent loss of access to your cryptocurrency. Unlike many other computing problems, there's no ‘forgot password’ option, no customer service to call and no technical backdoor. 

If your only copy burns in a fire, gets thrown away accidentally or becomes illegible, your funds remain locked on the blockchain forever unless you can remember the correct sequence of words. Cryptocurrency networks are designed to be trustless and immutable precisely because they can’t reverse transactions or bypass cryptographic security. This security design cuts both ways.

Exposure may carry the opposite but equal risk. If anyone gains access to your seed phrase, they have complete control over your wallet and can transfer all funds to addresses you don't control. This theft is instant, irreversible and untraceable in practical terms. 

Real-world examples abound, including phishing scams where attackers impersonate wallet providers or exchange support staff, requesting your seed phrase ‘for verification’. One common tactic involves fake customer service representatives on social media platforms responding to users' support requests, directing victims to fraudulent websites that mimic legitimate wallet interfaces.

Another prevalent scam is the ‘wallet verification’ email or popup, claiming your wallet needs updating or reverification. These sophisticated phishing attempts often include convincing branding and urgent language designed to stop you from pausing and thinking about what’s actually happening.

Hardware wallet users face physical threats too. For example, ‘$5 wrench attacks’ where criminals use force or coercion, or even elaborate social engineering schemes. The cryptocurrency space has witnessed numerous cases where users lost six or seven-figure holdings to seed phrase exposure through attack vectors including malware that captures clipboard contents, compromised devices or simply showing their seed phrase on camera during a video call or livestream.

The key takeaway is that users should consider using security practices for their seed phrases but must still remain vigilant once these are set up.

Custodial vs non-custodial wallets: Who manages your seed phrase?

The custodial versus non-custodial distinction fundamentally comes down to seed phrase control. 

Custodial wallets

Custodial wallets, typically provided by cryptocurrency exchanges like Crypto.com, may manage your seed phrase and private keys on your behalf. When you create an account, you don't receive a seed phrase. Instead, the exchange generates and stores it in their infrastructure. 

You access your funds through username and password authentication, similar to traditional banking. The exchange acts as your custodian, holding your assets in pooled wallets and managing the underlying cryptographic keys.

This custodial model offers convenience and familiar user experience. If you forget your password, you can reset it through email or two-factor authentication. Customer support can help with account issues, and many exchanges provide insurance or compensation mechanisms for certain losses. 

However, you're placing enormous trust in the exchange's security practices, financial stability and ethical behavior. Exchange hacks, bankruptcies (like FTX in 2022) and regulatory seizures can result in loss of access to your funds. The popular saying ‘not your keys, not your coins’ is popular for a reason as it encapsulates this risk. When someone else controls the seed phrase, you don't truly own the cryptocurrency. You hold what amounts to an ‘IOU’ from the custodian.

Non-custodial wallets

Non-custodial wallets flip this relationship entirely. Software wallets like MetaMask, Trust Wallet or the Crypto.com Onchain Wallet, and hardware wallets like Ledger or Trezor, give you complete control over your seed phrase. 

During setup, you receive the 12 or 24 words, and only you have access to them. The wallet provider never knows your seed phrase, which means absolute self-sovereignty: no one can freeze your account, censor transactions or deny access. However, with great power comes great responsibility. 

You can’t reset a forgotten seed phrase and there's no customer support to recover lost funds. You bear full responsibility for security, backup and protection against both loss and theft. Many users choose a hybrid approach, keeping small amounts for frequent trading on exchanges (custodial) while storing long-term holdings in hardware wallets (non-custodial).

FAQs about seed phrases

What is a seed phrase in Bitcoin?

A seed phrase in Bitcoin functions identically to seed phrases in other cryptocurrencies. It's a 12 or 24-word sequence following the BIP-39 standard that generates all the private keys and addresses in a Bitcoin wallet.

The seed phrase allows you to recover your Bitcoin addresses in any compatible wallet software, making it the universal backup mechanism for Bitcoin holdings.

Can I change my seed phrase?

No, you can’t change a seed phrase once generated. The seed phrase is cryptographically derived from random entropy and deterministically generates your wallet structure. Changing words would create an entirely different wallet with different addresses and no access to your existing funds.

If you're concerned about security, the proper approach is to create a new wallet with a fresh seed phrase and transfer your cryptocurrency to the new addresses.

Is a seed phrase a private key?

A seed phrase is not itself a private key, though the terms are sometimes confused. The seed phrase is the master secret that generates all your private keys through cryptographic derivation. It's more powerful than a single private key because it creates the entire hierarchy of keys for your wallet. 

Where is the safest place to store it?

The safest storage may be combining physical durability with secure location. A metal backup (such as stamped stainless steel or titanium) stored in a fireproof safe or bank safety deposit box offers maximum protection against environmental damage and theft. Creating multiple copies in geographically separated secure locations adds redundancy. 

What if I forget or lose my seed phrase?

If you lose your seed phrase and no longer have access to your wallet through other means (like the device it's installed on), your cryptocurrency is permanently inaccessible. There’s no recovery process, no customer service intervention and no technical workaround. This is by design as the cryptographic security that protects your funds from attackers also means there's no backdoor for recovery. 

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Important Information: This is informational content sponsored by Crypto.com and should not be considered as investment advice. Trading cryptocurrencies carries risks, such as price volatility and market risks. Before deciding to trade cryptocurrencies, consider your risk appetite. A seed phrase is a critical key to accessing certain cryptocurrency wallets. If you use a non-custodial wallet, you are responsible for securely storing your seed phrase. Losing it may result in loss of access to your assets.