Cryptocurrency was created as an alternative to familiar currencies like dollars, pounds, euros, yuans, and other traditional currencies so that the users of the virtual economy could enjoy the three main benefits that crypto gives them: security, transparency, and transaction anonymity. However, even in this seemingly perfect world that provides virtually complete safety, unpleasant or even outright awful situations occur when people still manage to lose tremendous amounts of money. And most of the time, it occurs due to one’s carelessness, negligence, and, let’s be honest, one’s foolishness.
So, let’s talk about the seed phrase — one of the simplest ways of securing (when using it correctly) or losing (when using incorrectly) your crypto assets.
What is a seed phrase?
A seed phrase is a sequence of words that will grant access to your cryptocurrency, regardless of the service or device it is stored on (e.g., in a wallet like MoneyPipe HD where the seed phrase is used to generate private keys, granting you full control over your assets). The words for a seed phrase are chosen randomly and encode a specific random sequence of numbers. Even though the seed phrase is not directly related to security, it solves the issue of accessing your private keys. It means that you can get all of your private keys from a single seed phrase instead of storing all of them in a single file. This will allow you to restore access to your cryptocurrency even if you lose your non-custodial wallet or in any other scenario, such as when you change the phone the app was installed on, or if the project has shut down.
Therefore, the seed phrase helps you not to lose your keys, but it does not entirely prevent access to them. However, it does guarantee that picking the phrase will not be possible: 12 standard words (sometimes even 24) of the phrase are very difficult to guess using the trial and error method, as you would not only need to figure out the words themselves, but also the right sequence. And that would be 2048 combinations to the 12 power. If we are talking about 24 words, we get 2048 combinations to the 24 power, respectively. Any advanced modern-day technologies could, of course, perform such calculations, but which one of them is the correct one would need to be determined by hand. And it is unlikely that any hackers have enough free time or willingness to perform such actions.
That is why a seed phrase is simultaneously a very simple and complex method of gaining access to a wallet. Guessing the right combination is nearly impossible, but whether other individuals will gain access to it with your help — is a whole other question. Another problem lies in the fact that restoring a seed phrase if you have forgotten or lost it is impossible. Using a seed phrase initially implies that only the user has access to it, which is another bonus in terms of security. However, it also means that you would not be able to turn to the developers for help if you forget your seed phrase, as they simply do not know it. You will also have to make sure that the seed phrase would not fall into the hands of other people of third-party services.
It is best to write the seed phrase down, or even better — to do it several times and keep it in several secure locations. A more controversial method in our world of modern-day technology is storing seed phrases on phones, tablets, computers, or televisions. In general — on all electronic devices, especially those that have access to the internet. First of all, if your device gets broken — you can consider your seed phrase lost, and only restoring data from the cloud could help you. Secondly, if you continuously catch viruses, then you might one day, sooner or later, lose everything by providing hackers excessive access to your device.
A few “inspiring” examples
According to a report, in 2018, around 22% of wallet owners have lost all of their savings, ranging from hundreds to hundreds of thousands of dollars. The main reasons that the gullible users have named were fraud and the unreliability of platforms that their bitcoin was stored on. However, the researchers are reluctant to believe respondents blindly: some of them have suggested that the main reason that the people have lost their assets was due to the loss of private keys, including the seed phrase. In other words: due to foolishness and recklessness. But not everyone has the strength to admit that it was their fault, and it is much easier to blame someone else; however, a few brave souls have shared their stories:
- One of the Reddit users named tycooperaow lost $1200 after he published his MetaMask wallet’s seed phrase on a website for programmers. The assets were withdrawn in less than 2 minutes after it happened — the wallet owner didn’t even have time to react. Here is what the victim of the mistake had to say: “I would like to warn you never to keep digital copies of your seed phrases or private keys. Especially online.” This is indeed wise advice, and it is a shame that tycooperaow himself could not heed it a bit sooner. On the other hand, people learn best from their own experience.
- Protocol Podcast host Eric Savics lost considerably more — $120 000, due to trusting a fake website for storing cryptocurrency. The fact that the platform prompted him to enter his seed phrase did not stop him, and as soon as he did, the hackers immediately transferred all of his cryptocurrency to themselves. Of course, the host’s sympathetic fans helped out and raised half of the stolen funds for him, but if you do not possess a fan-base as impressive as him, we would not recommend following in Eric’s footsteps.
- Another incident occurred with several IOTA wallet owners in 2018: due to users’ negligence, around a total of $4 million digital assets were stolen. The hackers used quite an elegant method: instead of picking phrases for other people’s wallets, they have created an online seed phrase generator that was very popular with users. Naturally, all generated phrases were handed to the fraudsters, after which it was only a matter of time until positive balances became zero balances.
Remember the main rule
Frankly, the first and only rule you need to follow is writing down your seed phrase on a physical medium and storing it in a secure place where nothing will happen to it. And, of course, besides carefully storing your seed phrase, you should be cautious of all sorts of crypto platforms, online-generators and wallets themselves, using only the most secure and trustworthy ones, such as MoneyPipe HD.
