What’s a seed phrase and how to keep it secure
Seed phrases are the ultimate protection for your Bitcoin.
The node knows: Your Bitcoin is stored on the blockchain, a network of computers or nodes all around the world. Transaction information such as transaction date and time, amount transacted, and sender/receiver addresses are kept on each and every node. Think of the blockchain like a digital ledger which every node has a copy of.
One password to rule them all: I bet you thought your Bitcoin was stored on your crypto wallet, it’s not. What is stored on your crypto wallet are the public and private keys needed to connect your Bitcoin on the blockchain with a transaction, think of your public key as an address like 40 Smith Way, and your private key as the lock on your mailbox. Anyone can look up your public address, but only you can unlock your mailbox to send or receive Bitcoin.
Keep it close: Lastly, a hardware wallet is one where only you have physical access to it. Popular hardware wallets include Leger’s Nano X and Trezor’s Model T which are just little USB connected devices. Hardware wallets are protected by a 12 or 24 word “seed phrase,” think of this as a "master" password.
Seed salvation: That seed phrase connects you to your Bitcoin on the blockchain, even if you lose your hardware wallet, the seed phrase can be used to recover your private key and setup a new hardware wallet. Seed phrases are pulled from a list known as the BIP39, most hardware wallets support this implementation.
Online password managers
Arguably the weakest chink in the armor comes from having to safely store your 12- or 24-word seed phrase. Storing it online would be a very bad idea, a hacker could access the information. For example, last year popular password manager LastPass warned their users that their master passwords were compromised.
Metal Wallet
Writing your seed phrase on paper and storing it safely introduces the risk of losing that paper, or having it destroyed. This can be mitigated with a “metal wallet,” which is a metal capsule you store your paper inside, or better yet metallic letters representing your seed phrase inside a protective metal capsule. Although protected against fire and disaster, they are still open to theft and confiscation.
Memory
The safest way to store your seed phrase is simply by memorizing it, although memorizing 12 or 24 random words in the correct order isn’t simple by any means. Shamir secret sharing is a way to split your seed into multiple seeds that can be given to trusted individuals, meaning less for each to memorize but more trust needed. Still, memory remains the most secure method until mind reading is perfected.
Border Wallets
A new and fascinating method detailed by Bitcoin Magazine uses a memorable 23-cell pattern applied to the BIP39 word grid, with the only word needed to be memorized is the last “checksum” word. While still needing memorization, it's easier to memorize patterns versus words.
Vestly Takeaway: “Not your keys, not your coins” is a popular adage meaning if you don’t have possession of your private key, through a hardware wallet, then anything can happen to your coins. Recent market issues causing exchanges like Robinhood, Celsius, Voyager, Zipmex, Binance, CoinFLEX, and others to freeze access to user's crypto, and in the case of some bankrupting away user’s crypto, illustrates this point and the importance of retaining your own private keys.