A large variety of words may seem like random musings online, but within the realm of blockchain, it is the randomness of these phrases, or seed phrases, that has become instrumental in securing crypto-assets.
What lies in a ‘seed phrase’, how instrumental is it in protecting 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. For most, a seed phrase is a complicated collection of words that serve as security within the equally complicated world of crypto. But, 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 failure or a hacking event, these seed phrases—which act like an extra password—come in handy to recover assets.
Furthermore, the process by which seed phrases are generated is complex. To understand this, we need to look at its foundation: BIP39.
BIP39 is a mnemonic code for generating deterministic keys. It was written in 2013 by four individuals: Marek Palatinus, Pavol Rusnak, Aaron Voisine and Sean Bowe.
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 turning 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 proper security. That is why it is essential to have and store seed phrases.
The Importance of Saving Seed Phrases
Cryptocurrencies are considered the most volatile assets, not only because of their price action, but also because most people were careless when they stored them. According to Chainalysis, more than 20% of the existing BitcoinBTC supply is lost or lying in inaccessible wallets.
Furthermore, an article by Business Insider noted that investors expect 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 main key to accessing and controlling your cryptocurrency and digital assets. If your seed phrase is lost or stolen, you risk permanently losing access to your digital wealth, as it cannot be recovered by anyone else. That’s why it’s important to protect key phrases in tangible places. Trying to memorize them is not enough for most people.
Storage methods for seed crops
There are several ways to save 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’re done. It is simple, accessible and requires no technical knowledge. 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 travel with it, there is no guarantee that it will be protected. For that reason, CoinCover called it one of the “worst” places to store a seed phrase.
Digital solutions
There are several 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 safe. Highly secure and often containing multiple encryptions, a digital safe is a good choice.
However, software-based solutions are still online, which means they take the seed phrase away from the only people who need access to it: Direct users. But that is not the only problem. Such solutions place too much responsibility for 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 intrusion 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 had lost a total of $4.4 million.
Such problems have driven people to look at more advanced solutions within the crypto realm. However, it is only intended 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 (formerly 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 several elements, or shards. And depending on the type of wallet, for example I use Keystone Pro, I can choose anywhere from 2 to 16 shards. And then I can also decide how many of those shards I need to get my wallet back.”
He continued that if a user wants the most secure option, they should split the phrase into 16 chunks. According to Zofka, more distribution of the seed phrase will provide more security to the crypto wallet.
Still, he noted the difficulty when it comes to using this method, saying, “It’s also an absolute nightmare when you actually have to do it yourself.”
Simpler and more flexible options such as hybrid digital solutions are therefore gaining prominence. They offer high level encryption, contain a hardware element and keep seed phrases accessible.
These hybrid solutions, according to Cristóbal Rosa, CEO of Cuvex, will become more fashionable over 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 multi-sig access and high-level encryption, while it also ensures that users can access their seed phrases whenever they want.”
Metal Backup Options
Metal backing is also a good way to go for those looking for a more durable solution, which involves stamping or even engraving the words onto a piece of metal.
Some of the best examples that include 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 those who have been with crypto since the beginning, appreciate it.
It’s better than paper in terms of durability, but that doesn’t mean it can’t be lost.
Hardware wallets
Hardware wallets also provide 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 safe. 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 hold these holdings in a hardware wallet, you have full ownership of these assets.”
However, even hardware wallets are not without their risks.
For example, in late 2023, Cybersecurity firm Unciphered shared a video showing Unciphered’s experts hacking a Trezor TT model hardware crypto wallet to show the wallet’s vulnerabilities.
The future of seed phrase storage must state accessibility and security
The crypto market is changing. More people are aware of it, and more investors see it as a credible investment – but not all new actors are in the blockchain space to make it better. Malicious elements are in the mix, trying to get their hands on other people’s hard-earned crypto.
This has increased the need to become more secure within the crypto-realm and find better places to store seed phrases.
Fortunately, 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-beginners must adopt consolidated measures to ensure the safety of their assets, using advanced hybrid methods to secure their seed phrases. It is the best option available today and will help crypto investors hit the intersection of accessibility and security.
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Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
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