What Is a Seed Phrase and Why Do Crypto Investors Care?

The term “seed phrase” is not uncommon among avid crypto users, as it is often encountered when they create their first crypto wallet or related account. However, if you are new to crypto, the term might be a tad odd to you.

A seed phrase is a key term in the cryptocurrency space. A seed phrase is a random group of words that are generated by a crypto wallet during the initial setup. These words and the specific order in which they appear represent the code needed to access a wallet. 

It is highly central to keeping your crypto funds safe and out of the hands of intruders or hackers. In this piece, we’ll dig deeper into what a seed phrase is and why crypto investors consider it extremely important. Let’s go!

What Is a Seed Phrase?

A seed phrase is a series of generated words that cryptocurrency wallets use so you can access the wallet. It is like a master password that allows you to access all of your crypto that you have stored in the wallet, even if you accidentally delete it or lose it.

So, you are given the phrase word whenever you create the wallet for the first time when it is completely empty. Usually, you are instructed to write it down for safety purposes, but not copy and paste it somewhere on your device.

Seed phrases are randomized sequences of either 12 or 24 simple words, as humans cannot randomize as effectively as possible. So your wallet does the magic itself. Some examples of  seed phrases are:

Example 1: czardom cellaret fulgent choker sallet raggedy reform shier codeine sesame sandman snuffle (12 words)

Example 2: avocado bench grail pillow purpose granted beach western trade again level sector polar cry wolf nephew tourist flush board citizen project impulse Latin strong (24 words)

An important aspect of a seed phrase is that it is not merely worded in any old order. They must be entered in precisely the same sequence as when the phrase was generated. This means that the word order itself is part of the phrase.

How Does a Seed Phrase Work?

Seed phrases work akin to any other form of code, with each word representing a numerical value that is understood by the wallet. The phrases are randomly generated based on a predetermined database of words. 

Although you sometimes have the option to come up with your own seed phrase, allowing your wallet to do its thing and generate the seed phrase for you is definitely the best option for your security. 

To use a seed phrase with a wallet, select the option to restore using a recovery phrase. The wallet will prompt you to enter your seed phrase in order. After correctly entering the seed phrase, you will have your crypto in your wallet.

What’s great about seed phrases is that they use actual common words in the English language that can be pieced together and remembered regardless of writing errors. Seed phrases have both the pros of randomization and common words.

How To Use a Seed Phrase

It is pretty simple to use a seed phrase. For instance, you may have misplaced your hardware wallet and need to access your crypto asset. All you need to do is create a new crypto wallet and transfer the old seed phrase. As you retrieve your secret keys from the blockchain, the program inside the wallet will reinstate your prior account balance.

The recovery mechanism could come in handy in a number of situations. These could include losing a wallet, deleting the browser from a web wallet by accident, a program wallet that failed due to a computer issue, or buying a new system.

What’s the Difference Between a Seed Phrase and a Private Key?

A seed phrase is sometimes confused for a private key but they are two entirely different security elements. The two are basically sequences generated by new crypto wallets and you could easily get confused about them, especially as a newbie.

However, one thing is certain about both: they must be well protected to ward off potential intruders from gaining access to your funds. So, how are they different from one another?

A seed phrase and a private key serve different functions. On one hand, a private key is similar to your ATM’s PIN combination, a password used to withdraw funds from a checking account or to approve a purchase with a debit card. 

On the other hand, a seed phrase acts as your crypto wallet’s master key. It gives whoever possesses it the ability to take total, permanent control over the account and everything in it.

Why Is a Seed Phrase Important to Crypto Investors?

So far, it should not be hard to pinpoint why crypto investors/users are particularly touchy about their seed phrases. Without them, you cannot access your cryptocurrency wallet and the crypto stored within. Here are the ways a seed phrase is beneficial to investors:

1. Protection against both online and offline threats. 

2. Seed phrases are available for free and they allow you to switch wallets in case of theft, deletion, or just getting a new wallet.

3. If you have the seed phrase, you can prove ownership of the coins regardless of whatever transpires.

Can a Seed Phrase Be Hacked?

You are probably asking if your seed phrase can be hacked by fraudsters since they are so important to all crypto users. Frankly, it’s near impossible to separate crypto fraudsters from the crypto space, especially in this highly connected digital world. 

Remember that a seed phrase is the master key to a crypto wallet, which means that it should never be in the hands of someone you don’t completely trust or should have access to your crypto wallet. 

However, seed phrases are actually hacked these days using the phishing scam method. Phishing is a strategy used by scammers to gain access to crypto wallets. They send emails to crypto users, disguised as customer support and ask for your seed phrase or private key. For example, the massive Solana wallet hack occurred after centralized servers stored unencrypted seed phrases sent by Slope Wallet’s mobile app, making them visible to anyone with access to the server.

It is quite obvious that you should be wary of phishing attacks and not fall for any suspicious emails or click on any links.

What Happens If You Somehow Lose Your Seed Phrase?

First of all, don’t panic. Your seed phrase is one of two ways to access your cryptocurrency; the other is the blockchain wallet. Essentially, you can still use your blockchain wallet to recover your crypto if you lose your seed phrase.

In this case, you should immediately transfer all your funds out of that blockchain wallet. Send them either to a crypto exchange where you have an account or another wallet that you use. After confirming that the transfers were successful, you can reset the original wallet and generate a new seed phrase.

There are some reasons why it’s integral for you to move your crypto out of a wallet if you lose the seed phrase. If anyone finds your seed phrase and you are still using the same wallet, well, you could have your crypto stolen. Now, if you lose your seed phrase and your wallet, there’s no way to get your cryptocurrency back. You must have at least one of the two to make it work.

How to Securely Store Your Seed Phrase

All this talk of insecurity around a seed phrase may have spooked you a bit, but not to worry; there are ways to keep your seed phrase safe. Crypto users usually write down their seed phrases on paper and keep them with all their other notes. But for safety, it’s best you keep your written seed phrase inside a safe or a bank’s deposit box. That way, you’ll know where to find it when you need it.  

Another way is to store it digitally on a flash drive that you do not share with anyone or plug into an internet-connected device. Of course, that might be for you. If you are highly security-conscious, you can have your seed phrase engraved on steel plates for more longevity. It survives longer and is safer than a sheet of paper.

Why You Should Care

A seed phrase is one of cryptocurrency’s most important security features in that it can be used in regaining access to a lost wallet or one with forgotten credentials. As a result, whether you are a newbie or an experienced crypto investor, you should always keep your seed phrases in a safe and secure manner.

When you lose your seed phrase, you lose your greatest chance of regaining access to your crypto wallet and the digital asset it contains. This is due to the fact that once a seed phrase has been lost, it is impossible to replace or retrieve it.

Find out more on Kaspersky’s prediction on the crypto attack in 2022:
Global Cybersecurity Firm Kaspersky Predicts Crypto Attacks Increase in 2022

Read more on crypto cybersecurity:
Crypto Cybersecurity. How Safe Are Your Assets. DailyCoin Investigated