The ability to self-store digital assets is the main advantage of blockchain, which gives the owner independence from external services, but also imposes the responsibility to secure wallets by themselves. In the case of EOA, this means reliably storing the mnemonic (seed) phrase, which allows restoring access to the address and assets in case of loss of the application or device.
In this article, we will explore how the seed phrase works, why it is so important, and what storage methods are best to use to ensure the security of assets.
What is a seed phrase and how did it come about
The mnemonic (seed) phrase is a phrase of 12 or 24 words and is used to access the cryptocurrency wallet in case of loss of the device or application.
This phrase is generated during the creation of a new address using a special algorithm and a base of 2048 words.
The concept of the mnemonic phrase appeared in 2013 to facilitate the management of cryptocurrency wallets. Before that, users had to store long and complex private keys and transfer them from device to device to maintain access to assets. By knowing the seed phrase, the owner can restore access to the private key through any interface.
If compared to traditional accounts, it is similar to a password that, however, cannot be changed or recovered.
How the seed phrase works
When creating a new address, the algorithm automatically generates a phrase from a random set of words. As a rule, most wallets require the user to somehow copy this phrase and confirm their awareness of it.
The public address and seed phrase are inextricably linked, so once generated, it can be used for:
restoring access to the wallet and assets in case of loss of device, password, user application, etc.;
importing an address into another interface. For example, a MetaMask user can transfer their address to the OKX application by providing the seed phrase.
In the last case, access to the address is possible immediately from several interfaces, as all previously used applications also store the private key. That is, importing through the mnemonic phrase allows managing the same assets, for example, from a smartphone, browser extension, and hardware wallet simultaneously.
It is important to note that in custodial storage of assets, for example, on centralized cryptocurrency exchange wallets, the owner does not have access to the seed phrase or even the private key. All cryptocurrency transactions are technically performed by the custodian, who is responsible for the protection of account data, including the mnemonic combination.
Why it is important to securely protect the mnemonic phrase
A seed phrase of 12 words provides 132-bit protection, which practically eliminates the possibility of theft through guessing or random guessing of the combination. Therefore, most attacks occur due to improper storage, allowing an attacker to discover and steal the phrase — often applications store data on the user's device in plain text.
If an attacker manages to gain access to the device on which the interface is used, say through malware, they could potentially discover the mnemonic phrase, seize the address, and manage the assets. That is why there are several security rules:
It is better to store the seed phrase on a physical, rather than electronic, medium;
Do not import the combination into an excessive number of applications, especially on different devices;
Before using any interface, find out how it stores the seed phrase. Priority should be given to solutions with built-in encryption;
It is not recommended to provide the mnemonic phrase to third-party services not related to the wallet application, such as support services, exchanges, etc.
The general rule is as follows — the more copies of the mnemonic phrase are stored on different media, the higher the risk of its theft. Therefore, it is important to track where exactly the combination was imported and how secure this device or application is.
5 ways to securely store the seed phrase
Considering the above, the wallet owner must find a way to store the mnemonic combination that ensures its protection as well as convenience of use. Among the most secure and common methods:
physical media. Requires transferring the combination to an external medium, such as a special form or ordinary paper, which makes remote access impossible;
encryption. Involves additional encryption of the file in which the phrase is stored to prevent its theft;
memory. Since the mnemonic phrase consists of English words, theoretically the owner could simply memorize it to avoid transferring it to an external environment;
cold storage. Storage on an electronic medium without network access, to protect against hacks;
specialized media. There are devices that can protect data for access even in extreme conditions, such as Cryptosteel Capsule Solo from Ledger.
It is also important to distinguish between storing the mnemonic phrase and the private key — in the first case, it is possible to avoid using electronic media, while in the second, a potentially vulnerable environment is always used. Since the private key allows for the management of assets, its protection should also be taken care of, in particular, using hardware wallets.
What experts recommend
In 2019, Ethereum co-founder Vitalik Buterin proposed the concept of encrypting the seed phrase by adding a random number 'x' to the variable 'k'. Each part of the equation is transmitted to one of three trusted individuals, and to obtain the key, the solutions of at least two of them are needed. This method can also be applied to encrypt the mnemonic phrase if the words from the BIP39 table used to generate the combination are first converted into numbers.
Andreas Antonopoulos, known in the community as an early Bitcoin maximalist, highlights the following rules for storing the mnemonic phrase:
avoiding complex schemes. It is better to avoid independently using complex schemes for storing the combination, such as splitting it into parts;
physical storage. The phrase should be stored on reliable physical media to protect it from damage or theft. Ordinary paper is not always an optimal solution;
using standard practices for protection. In particular, using hardware wallets and periodic transfers of assets to new addresses with new combinations and private keys;
avoiding electronic media. Andreas recommends not storing seed phrases in clouds or on USB drives.
The approach of Antonopoulos is based on minimizing the possibility of losing the phrase due to an overly complicated approach to storage and the peculiarities of electronic devices. And it is not only about hacks but also about technical failures that can lead to the deletion of user information and, consequently, loss of access to funds.
Conclusion
The seed phrase is one of the most important elements of cryptocurrency wallet protection, as it allows access to assets and the private key. Despite the high level of security that eliminates the possibility of guessing the mnemonic combination, the owner should still take care to protect it to prevent theft.
For maximum protection of the seed phrase, it is recommended to store it on physical media or devices protected from external access and network connections. In addition, additional encryption of data can be used and applications that store the combination in plain text should be avoided. At the same time, it is important not to complicate the storage process too much to minimize the risks of accidental loss of information.
In the absence of experience with digital assets and knowledge about blockchain wallets, one may also resort to custodial storage. However, it is worth remembering that actual access to the address is held by the one who stores the private keys and the mnemonic phrase.
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