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How Secure Is Your Cryptocurrency Seed Phrase?

17:26 17/09/2018

Creating a backup copy of a crypto wallet in the Bitcoin network is a quite simple process. For this purpose, a so-called seed phrase is used. A seed phrase significantly increases the reliability of crypto wallets. Let’s consider how they work, learn what an HD Wallet (or Hierarchical Deterministic wallet) is, and explain how to create a seed key without the Internet connection using dice.

 

Some people believe that it is necessary to be good at IT to work with Bitcoin. They are sure that they will not be able to understand the complexity of this phenomenon without relevant knowledge. For this reason, inexperienced network participants are quite often advised to rely on businesses that provide various kinds of crypto services. On the one hand, such advice looks quite rational, but if you think it over, they are inconsistent with the idea of Bitcoin. There are two reasons for this:

 

First, the need to trust third parties makes Bitcoin partially pointless. In such cases, it is much more reliable to deposit money in a bank than to transfer it to an intermediary company.

 

Second, there are methods of simple creation of backup keys for cryptographic algorithms underlying the cryptocurrency. Naturally, they did not emerge by themselves. Their developers made a tremendous effort to create algorithms for the correct use of backups.

 

The further brief instruction describes how to make a wallet backup copy by using a seed key. By spending only a few minutes to create the key, you can make sure that your funds are safe.

 

Random phrase

 

So, what is a seed? How to use it correctly to create a backup copy of your wallet?

 

A seed key can be printed or written down on paper, cut on stone, stored on any digital and non-digital media. All you need is to ensure the safety of your phrase, as the one who owns it, owns the wallet. Using the seed phrase, a user can check the balance, make transactions, and even restore access to the wallet from anywhere in the world.

 

The functionality of many software crypto wallets often includes a data backup option through generating a set of random English words. For instance:

 

alburnum kinfolk cuticle drawers postern degraded mankind dipper sourpuss sonority idiom ideas

 

If you try to read these words as a one-piece phrase, you can see that it has no semantic meaning. However, there may be a huge amount of money behind it.

 

Reservation and recovery

 

The process of creating of such a sequence is rather simple. Install a program on your computer that supports HD Wallets. Most Bitcoin wallets support this solution, so the choice is vast. Many of them require a seed before the first use of a crypto storage. Sometimes this function is hidden in the backup menu.

 

The recovery process should not cause problems. Adding a seed phrase to a wallet application on another device will allow you to access your cryptocurrency regardless of your location and device type. Using wallets of the same type certainly makes working with cryptocurrency much easier. In different wallets, the access recovery option looks different. However, regardless of the device type, the only thing a user needs to know is the seed phrase.

 

Difficulties

 

Unfortunately, there may be troubles with wallet applications, too. Recovery can be complicated by outdated wallet versions or a server failure. However, the problem can be solved even in this case.

 

Cryptography, like any other area of human activity, is being improved. Methods, algorithms, and approaches to encryption are changing. However, secret keys are needed for working with cryptocurrencies. The restoration or creation of secret keys is based exactly on the seed phrase. A cryptographic method that uses a HD Wallet allows generating a Master key from a seed key. In this case, the same seed will provide the same Master key, regardless of the software type.

 

The problem stems from the difference in standards. Inherently, Master and seed are unified, but it is possible to restore the rest of the keys from them in two ways, by using the BIP32 and BIP44 standards. However, the keys created by the first standard are incompatible with programs using the second standard, and vice versa. That is why it is important to understand which standard is supported by the wallet you choose.

 

Apart from that, the same standard may have several variations. Seed phrases can consist of 12 and 24 words, which greatly affects the result, while word sets can vary since they depend on the preferences of the program creators. For these reasons, some wallets can recover only a part of addresses that was created on other software.

 

The table below displays information about the seed standards of major crypto wallets manufacturers. It is worth remembering that developers are constantly improving their products, so data on some standards may be irrelevant. Besides, the emergence of new standards is also possible.

 

 

If you do not know the required standard, visit one of the specialized websites to determine the parameters of the key. You can choose an appropriate software having more detailed information. Moreover, we recommend you to visit the website, which allows generating keys for specified seed phrases. The algorithms configured there will help to restore necessary wallet addresses to enter them into a local program. Master keys, secret keys, and all corresponding addresses are subject to recovery with the help of a seed.

 

The Magic of Cryptography

 

For a better understanding of the topic, let’s take a look at the rules for storing of bitcoins. It is known that coins are stored on a so-called address. This address can be obtained by processing a public key. In turn, the public key is generated from a private key. The easiest way to keep the private key is to write it in a text file on a PC. If you do not trust computers for security reasons, you can write down the key on paper.

 

Using a new address for each operation guarantees privacy. Most wallets generate a new address automatically or at the request of a user. It is much better than using a pair of keys each time. Besides, securing the funds with a secret key after each transaction causes inconvenience. In some cases, careless handling of a secret key can even lead to a loss of funds.

 

In 2012, Peter Vuile, one of Bitcoin authors, published a document describing the BIP32 standard, in which he described the use of HD Wallet for convenient and safe use of entropic seed keys and addresses. The developed method implies the use of a single Master key for the retrieval of secret keys. Moreover, these keys will be derived in a strictly defined order. Later, other documents that extend the functionality of the system were created. Marek Palatinus proposed BIP39, which describes the generation of the Master from the mnemonic seed of different sizes (12 and 24 words). Meanwhile, BIP44 is considering a toolkit for working with multiple accounts. Here is a hierarchy of secret key sets along with the sets of addresses for each of them.

 

It is interesting that the same mnemonic seed key can be used for different blockchains. Litecoin, Monero, Ethereum, and other cryptocurrencies accept the same phrases. That is why there are multicurrency wallets with an option to store a single seed phrase.

 

However, a seed has certain disadvantages. Theoretically, seed keys guarantee complete safety. However, the question arises whether a seed phrase can be leaked during its generation. Even the creation of a seed locally on the computer does not guarantee the full preservation of data. The received key can come into the hands of the wallet authors. It is also worth considering the possibility of conventional maleware on a PC. Their operation is difficult to detect and cannot be interrupted if the protection of the standard does not fix the problem.

 

Dice

 

As it was already mentioned above, the complete safety of information cannot be guaranteed. However, there are different degrees of security and they depend on the level of a threat. You can protect yourself from a data leakage by disconnecting from the network. To do this, a user should visit a seed generating website, whose code is in the body of the page. After that, you should disable the Internet, generate a key, and close the website. The code on the browser page will boost the generation, but it will not have the network connection.

 

A computer creates random values by using a built-in generator. However, it is difficult to achieve a truly random number with its help. In computer technology, pseudo-random numbers with a shifted probability distribution are used more often. If you want your seed to be maximum random, you can use ordinary dice. A reliable generation result requires about fifty rolls. By recording all results to an offline program, you will get a seed phrase.

 

The best way to store a seed is on paper or something similar. A digital medium is also acceptable, but in this case, the information should be securely encoded. Either way, by using software wallets, you apply your seed, get a Master, and receive a set of addresses from it.

                                              

Unlike a seed, the received addresses can be stored in a regular file on the computer. They are used only to indicate the recipient of a crypto transaction, but they are useless when it comes to managing of funds. That's why the safety of a seed should be taken seriously.

 
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