Seed Phrase

In the early stages of Bitcoin’s creation, users had to work directly with private keys, which was complicated, impractical, and above all dangerous. Each private key was a long string of random characters that needed to be stored securely. If you lost your private key, your Bitcoins were irreversibly gone.

This problem led to the need for a simpler solution. In 2013, an improvement was introduced on the Bitcoin network, which led to the implementation of so-called hierarchical deterministic wallets. This new system made it possible to generate an unlimited number of private and public keys from a single master key.

While in the past it was necessary to store a private key for every transaction, today a single master key is sufficient. Although this was a significant milestone forward, it was still complicated to store the master key securely.

This changed in 2014, when BIP 39 (Bitcoin Improvement Proposal – a proposal for upgrading the Bitcoin network) was introduced and presented the seed phrase.

A seed phrase consists of 12, 20, or 24 English words that serve as an easily readable representation of the master key. This seed phrase is in fact a conversion of a long string of random numbers into understandable words, which users can write down on paper or store in a secure place. The seed thus became the foundation for generating all private keys in an HD wallet.

If you lose your wallet or device, it is enough to enter the seed phrase into any compatible Bitcoin wallet, and all your Bitcoin addresses will be automatically restored.

How does a seed work?

When you create a new wallet, a random 128-bit or 256-bit numerical string is automatically generated, which is then converted into 12 or 24 words using BIP-39. These words are not random – they come from a special list of 2,048 English words, which are selected to minimize the possibility of typos and to ensure uniqueness.

Your seed phrase is then used to generate the master private key, from which all other Bitcoin addresses are derived. This means that the seed is the key to all your Bitcoins.

The seed phrase is the only way to recover lost Bitcoins. If you lose your device, hardware wallet, or software wallet, the seed is the only thing you need to restore them.

However, if someone else obtains it, they can immediately restore your wallet and steal all your Bitcoins. That is why you should never store it online, in cloud storage, or photograph it with your phone. The best practice is to write it down on paper and store it in a safe place.

We can therefore say that your seed is your Bitcoin. If you are to take only one piece of advice or lesson from this book, let it be this:

NEVER SHARE YOUR SEED PHRASE WITH ANYONE. NEVER STORE IT ONLINE. IT MUST NEVER REACH THE INTERNET, OTHERWISE YOU RISK LOSING ALL YOUR BITCOINS.

Despite this, many people make critical mistakes that lead to the irreversible loss of their Bitcoins. The seed is the only way to restore a wallet. The history of Bitcoin is full of stories of people who underestimated security and paid a high price for it.

One of the most common mistakes is photographing the seed with a mobile phone. Many users want to make their lives easier and instead of writing the seed down manually, they take a photo of it. This is extremely dangerous – modern smartphones automatically back up photos to the cloud or other online storage services that are vulnerable to hacker attacks.

If someone gains access to your cloud storage, they can easily copy your seed and steal your Bitcoins. Numerous cases of hackers targeting Google Drive, iCloud, or Dropbox show that leaks of sensitive data are not uncommon.

Another major mistake is storing the seed in digital form – for example as a text file on a computer or as a note on a mobile phone. Once your seed exists on a device connected to the internet, it is at risk. A computer can be infected with malware, a keylogger, or ransomware, which can search for sensitive data and send it to hackers.

Some of the most well-known cases of Bitcoin loss due to improper seed storage are tragic. Perhaps the most famous case is James Howells, a British IT technician, who in 2013 unknowingly threw away a hard drive containing the seed to a wallet holding 8,000 BTC.

The drive ended up in a landfill, and he has been trying to find it ever since – however, the chance of recovery is minimal. If he were able to restore his wallet today, the value of his Bitcoins would exceed hundreds of millions of dollars.

Some lost Bitcoins also come from times when people did not take Bitcoin seriously. In the early days of Bitcoin, when a single coin was worth only a few cents, many users kept their seeds written on pieces of paper or ignored them completely.

When the price of Bitcoin began to rise, they realized that they would never be able to recover their Bitcoins. It is estimated that approximately 4 million BTC (almost 20% of all existing Bitcoins) are permanently lost precisely due to improper seed storage.

Bitcoin gives users full control over their funds, but with this freedom comes enormous responsibility.

Is my seed safe?

If I have my seed written down correctly and stored securely, is it possible that someone could guess it and steal my Bitcoins?

Let’s take a closer look. Bitcoin uses cryptography based on 256-bit numbers, which represents an unimaginably vast number of possible combinations. It is assumed that the number of possible combinations is almost equal to the number of atoms in the entire universe.

Guessing a private key is like searching for a single specific atom in our universe. On the internet, you can find many comparisons of how long it would take to find a specific seed.

I will try to summarize the most illustrative and accurate example for me.

The number 2²⁵⁶ is so enormous that it is practically unimaginable. To make it at least somewhat understandable, let’s break it down into eight smaller parts, specifically 8 × 2³². The number 2³² is approximately 4.3 billion – a number we can already comprehend.

Now imagine that we own a supercomputer that can check 4.3 billion possibilities per second – the entire range of 2³². Next, imagine that we build a data center containing a billion such supercomputers.

There are approximately 8 billion people living on Earth today. Now imagine that every second person on Earth owns one such gigantic data center.

And now let’s take it even further. Imagine that we are not alone in the universe, but that there are 4.3 billion other planets like Earth, on which the same search is happening simultaneously.

This enormous search network would check 2²⁵⁶ combinations in a single second, meaning the entire space of possible Bitcoin private keys. The question is: how long would it take?

Even if all this computing power operated continuously for 13.8 billion years – the estimated age of our universe – the probability of finding a specific private key would be practically zero. More precisely, it would be less than 1 in 10⁷⁷.

That is a number so absurdly small that finding a specific atom in the entire observable galaxy would be many times easier.

If you are worried that this is too complicated, do not despair. I have tried to explain the background of the Bitcoin network, however all signing with a private key happens behind the scenes of a simple press of the “Send” button.

Everything else is handled by the Bitcoin wallet.

Types of wallets

Although paper wallets were used in the past, development on Bitcoin has progressed, and you can very easily obtain your own Bitcoin wallet today. Let’s take a look at them – in principle, we have two basic types.

Software wallets are applications that you can install on your mobile phone, tablet, laptop, or as an extension in your internet browser. They are easy to install and immediately ready for use.

The problem with software wallets is their potential security risk. Just as someone can break into your device and install a virus on it, a skilled hacker can, with a moment of inattention, gain access to your account in the same way.

Here it is important to understand that lost or stolen Bitcoins cannot be recovered. Bitcoin is a decentralized network that has no authority – no person who controls the network.

There is therefore no technical support where you can restore your wallet or where someone can help you recover hacked Bitcoins.

Hardware wallets are special devices that store your private keys offline. They sign transactions, but never expose your private keys to the dangerous online world.

Compared to software wallets, which are mostly free, hardware wallets are a more expensive solution. However, they place primary emphasis on security.

Which one is better to own? The answer is: both. A software wallet can be kept on your mobile phone, and therefore always with you.

Think of it as a regular wallet that holds money for everyday use. In contrast, think of a hardware wallet (usually a physical USB device) as a bank vault.

A Bitcoin wallet is therefore not just a “place to store money.” It is the key to your financial independence. The storage and security of the private key are absolutely crucial – if you lose it, no one will recover your Bitcoins for you.

That is why it is important to understand how to properly work with a Bitcoin wallet and how to avoid common mistakes that have already cost people millions of dollars.