Seed phrase is a phrase consisting of 12–24 words that can recover your crypto funds.
There is no better way to demonstrate what a crypto wallet is than with the help of a seed phrase. When people hear the word "wallet," they imagine a leather-bound container. The key word being - container. Yet, a crypto wallet is no such thing. There are no special files for crypto wallet to contain, even if you purchased a colorful NFT animation.
Instead, a crypto wallet represents access to your crypto funds on the blockchain. It contains a private key that unlocks that access, while the public key is there to send and receive funds from one wallet to the other. With that in mind, it is then easy to understand what a seed phrase is.
Let's say you dropped your mobile device into a volcano, with the crypto wallet app installed. If you still have your seed phrase, either memorized, or stored somewhere else, you would still be able to access your funds. Why?
Because your crypto funds are recorded on a blockchain, not your crypto wallet. Correspondingly, to recover your cryptocoins, you would only have to access a new device, and install a new crypto wallet with the imported seed phrase. The implication of this is remarkable.
If you were to own one billion worth of Euros in cryptos, and have a reliable memory, you would need nothing but your brain to carry that wealth wherever you go. As long as the Internet exists, your seed phrase will be able to open up the vault to your wealth.
Likewise, if you lose your seed phrase, you lose your wealth. It is as simple as that. This is exactly what happened to software developer Stefan Thomas when he lost access to 7,002 BTC, worth about €268.3 million EUR. Thankfully, developers took care to make the seed phrase easily memorable, consisting of short words instead of numbers.
With that said, it would be prudent to store a seed phrase in one of the following ways:
- Write it down or print it on a piece of paper. Then, use a thermal laminator to laminate the paper as proof against oil, water, and accidental ripping.
- Hide the laminated paper, preferably in a safe deposit box, inside an unrelated document file.
- Store it on a hardware wallet such as Nano Ledger or Trezor.
- Store it on a biometric USB 2FA (two-factor-authentication) key.
- Engrave it into jewellery or other hard material such as stainless steel.
These are just some of the hundreds of combinations that can be used to safeguard a series of words. In the end, it all comes down to the balance between security and convenience.