What is the worst thing that can happen to a crypto owner? A long-lasting crypto winter? A rug-pull? Well, these suck too, but if you lose your crypto because of your own mistake, that’d hurt more. That’s why we decided to tell you– or remind you, to secure your seed phrases. Private key protection is also crucial, but how about you seed phrase? Those who know got the memo already, but for the newbies in the crypto market or those who never used a self-custody wallet before, here is a refresher:

A seed phrase is a crucial element for securing your digital assets. This series of 12 or 24 random words, also known as a mnemonic phrase, can be considered a master key for your crypto wallet. These words are essential for accessing and recovering your digital wealth. Its role in safeguarding your crypto assets cannot be overstated, as it lies at the core of private key generation for every cryptocurrency you hold in a self custody wallet​​​​. The security of these words is on you. 

Some trivia will not hurt anyone, so here it goes: the term ‘mnemonic’ comes from the Greek word ‘mnēmonikos,’ which means ‘of memory.’ It’s fitting, as these phrases are designed to be memorized and recalled easily. In the context of cryptocurrency, they balance security with usability. They make it possible for individuals to manage their digital assets without needing expert-level knowledge of cryptography. 


The Importance of Seed Phrase Security

A seed phrase differs from a private key, which is a string of numbers and letters used to approve transactions. While private keys are stored within wallets, the seed phrase serves as a backup to recover these wallets if they are lost or broken​​. The need for self-custody in the crypto world stems from distrusting centralized entities and a desire for full ownership of assets as well as to achieve the best possible cryptocurrency security. Therefore, securing your seed phrase is critical, as it is the only backup to your private keys and provides access to your crypto assets​​.

Seed phrases are primarily associated with self-custody wallets. However, it’s essential to understand the distinction between self-custody (non-custodial) wallets and custodial wallets to appreciate the specific use of seed phrases:

  • Self-Custody (Non-Custodial) Wallets: In these types of wallets, the user has complete control over their private keys and their crypto assets. Self-custody wallets generate a seed phrase when the wallet is created. The responsibility of safeguarding the seed phrase lies entirely with the user. Examples of self-custody wallets include hardware wallets like Ledger and Trezor, as well as various software wallets. Such options are considered superior in terms of secure storage. 
  • Custodial Wallets: These are wallets where the private keys are held by a third party, like a cryptocurrency exchange or a wallet service. In custodial setups, the service provider manages the keys on behalf of the user and the wallet security is in their control. Users typically do not get a seed phrase in custodial wallets because they do not have direct control over their private keys. Instead, access to funds is typically via a username and password, and the security of the assets depends on the measures taken by the service provider. Such wallets also offer protection to some degree, such as two factor authentication (2FA).

Losing a seed phrase can lead to disaster. Now take a moment and imagine your hardware wallet is damaged in a fire. If your seed phrase is safely stored in a metal wallet, it can survive and allow you to restore your wallet on a new device. Without that backup, the crypto assets would be as irretrievable as physical assets lost in the fire.

Another disaster scenario could be theft or loss. If your mobile device with a hot wallet is stolen, the seed phrase acts as a lifeline. It enables you to quickly regain control of your assets on a different device, like having a spare key to your house in case you lose the original. We all forget our keys or lock ourselves out by accident, people are not that bright when you think about it. This is why it is essential to keep your seed phrase secure. But how?


Best Practices for Protecting Your Seed Phrase

Here are some ideas to choose from. 

  • Copy the seed phrase word for word as displayed by the wallet. Any change can result in loss of access to your cryptocurrencies​​. 
  • Write down the seed phrase and store it in a secure spot like a safe deposit box or a protected digital environment. This practice ensures accessibility despite forgetfulness or hardware mishaps​​ by creating a seed phrase backup.
  • For greater longevity and safety, engrave the seed phrase on a metal plate, using products like Cryptosteel Capsule for steel-grade security​​​​.

Advanced Storage Solutions

  • Hardware Wallets: Use air-gapped physical devices like Ledger Nano X or Trezor Model T for enhanced security. These cold storage devices secure your seed phrases from the internet and physical theft​​.
  • Encrypted Vault Apps: Some apps offer added security measures like routine audits and automatic backups, providing a robust security framework for your digital assets​​.
  • Manual Generation Methods: Consider using calculators or dice to manually generate seed phrases for high-security scenarios, minimizing digital exposure​​.

Recovery Options

The seed phrase recovery system, particularly following standards like BIP39, offers full control over the security and accessibility of crypto assets. It allows recovery of private keys from other compatible wallets if the original wallet is lost or the manufacturer ceases operation​​.

Always store the seed phrase in a location separate from the cryptocurrency wallet for optimal security​​. You can also opt for multisignature wallets.

Additional Considerations

Human Factors: The primary vulnerability of seed phrases and digital assets protection lies in human factors, such as social engineering or poor storage practices​​.

Offline Storage: Store your seed phrase offline, as online storage makes it vulnerable to hackers and malware​​.

Seedless Wallets

Seedless wallets, which do not rely on a single seed phrase, use multi-party computation or smart contract technology for key generation and signing processes, offering a different approach to security​​.

Final Considerations

The protection of your seed phrase must be your top priority in securing your digital assets. While there are various methods to safeguard this critical piece of information, the effectiveness of each method depends on how diligently it is implemented. Remember, in DeFi, the responsibility for security lies in your hands. Regularly assess and update your seed phrase security strategies and seed phrase management ways to ensure the safety of your crypto investments. 

We hope that this article reminded you to reconsider the safety of your seed phrase. It’s always better to be safe than sorry. Always prioritize your cryptocurrency precautions. Risk management in cryptocurrency is a serious matter and to minimize the risk is in your own hands.