What Are Seed Phrases & Why Are They Important?

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One of the fundamental principles making cryptocurrency so attractive is that crypto owners have control of their own digital assets.

By “control,” we mean that they are not dependent on a third-party institution or a centralized entity to manage, or store their wealth.

Users can control the storage and management of the assets themselves. This means there is no need to provide any identification or to have to pass any legal requirements.

You may be wondering then; “How does the blockchain technically know that a person is the owner of a wallet that holds crypto within it”?

What’s The Secret?

The answer to this question is a “seed phrase”. Seed phrases, also known as recovery phrases are woven into the technical design of crypto and blockchain technology.

To truly understand the importance of the seed phrase, you must first understand the basics of cryptocurrency strorage.

The safest way to securely store your cryptocurrency is in a crypto wallet. 

There are many different types of crypto wallets, including self-custody wallets, hosted wallets, and exchange wallets.

Self-custody wallets are the most secure. This security is due to the fact that the user owns the wallet, giving them sole access.

On the other hand, an exchange wallet is a wallet that a crypto exchange uses to hold the cryptocurrency under your exchange account, which means that the exchange technically has control of your crypto.

Regardless of what type of wallet a user has, the seed phrase, or recovery phrase is essentially a string of simple words generated when you first create a crypto wallet.

This seed phrase acts like a master password that allows someone full access to the associated crypto wallet.

Because it is what gives someone access to all the cryptocurrency that a wallet has, the seed phrase is the most crucial piece of information. Only the owner of a crypto wallet should know their seed phrase.

A wallet’s contents are always recoverable, even if the user’s computer or smartphone is compromised.

Creating Seed Phrases

While creating a crypto wallet, there will often be instructions from the software that will prompt you to remember the seed phrase.

To make sure your cryptocurrency is secure, do not share the recovery phrase anywhere, or with anyone.

Upon creating a seed phrase, users will typically have the option to either make their own seed phrase for the wallet or have the software generate a random recovery phrase.

We recommend choosing a randomly generated seed phrase because people are not usually as great at creating a hard to guess, perfectly secure seed phrase.

The recommended approach is to get the random recovery phrase and then write it down somewhere offline that only you (the wallet owner) has access to.

That way, you can ensure that no one ever can get your seed phrase and steal your cryptocurrency from your wallet.

Why Are Recovery Phrases So Important

To summarize, seed phrases are critical because they essentially act as the master password to your crypto wallet.

With the master password, one can gain access to the private keys of a cryptocurrency wallet.

Private keys are crucial because the blockchain uses them to verify true ownership of the crypto in a blockchain address.

Therefore, no one but the owner should know the seed phrase. A compromised seed phrase means that all the private keys are also compromised.

It is, however, essential to note that many people inform their spouses (or otherwise) of the of the recovery phrase. In the case of death or emergency, this practice ensures their crypto assets are recoverable.

Access to your crypto wallet is possible from any device. So, if the device you are using malfunctions, you’ll can access your wallet from elsewhere, using your recovery phrase.

Protect The Recovery Phrase At All Costs

A final thing to note is that the seed phrase is permanent. Once created, recovery phrases cannot be changed.

The seed phrase is a fixed piece of information that will always stay the same. There is no way to reset it if you forget it.

Losing the recovery phrase means losing access to all of your crypto because no one can provide support regarding it.

As a result, one must ensure that the recovery phrase is always safe from harm’s way. This means, if you write it down physically somewhere, it’s best to keep it in a fireproof safe.

If you take anything from this article remember this; if yolu lose your seed phrase, or someone else gains access, all cryptourrency within that wallet is at risk.

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