Seed phrase for securing cryptocurrencies

If you deal with Bitcoin or other digital assets, you’ll sooner or later come across the term seed phrase. When it comes to storing cryptocurrencies securely and maintaining access to your wallet at all times, the seed phrase is of great importance. But why does so much depend on this seemingly simple sequence of words?

In this guide, we’ll explain exactly what a seed phrase is, how it works and how you can create one. You’ll also see examples of seed phrases, learn where you can store them and find out what happens if you lose yours.

• A seed phrase, by definition, is a sequence of words that serves as the central backup for accessing your wallet.

• It works using a cryptographic tree structure and is usually based on the HD standard.

• To protect it from fire, water and corrosion, holders should record their seed phrase physically, ideally on a stainless steel plate.

• To retain full control of your Bitcoins, you should create several backups and store the recovery phrase in different locations.

Definition: What is a seed phrase?

The seed phrase (mnemonic) is a randomly generated sequence of words that secures access to a crypto wallet, such as for Bitcoin. It’s also known as a recovery phrase and serves as a key to restore a wallet in case of loss or device change (recovery). The term “seed” refers to the origin or “seed” from which all private keys of a wallet can be derived. This so-called phrase therefore forms the foundation of the entire wallet structure.

Typically, a seed phrase is based on the so-called HD standard (hierarchical-deterministic), in which all keys are generated from a single sequence of words. As a result, it’s sufficient to simply remember or securely store the seed phrase. According to definition, the seed phrase usually consists of 12 to 24 words taken from a predefined list and arranged in a specific order. The words may seem random at first glance but are part of a strictly standardised cryptographic system. Whoever possesses such a phrase controls the associated data, transactions and tokens.

Did you know? Seed phrase and private key are often confused but don’t mean the same thing. The seed phrase is an easy-to-remember sequence of words that serves as a backup for your wallet. From it, all private keys can be cryptographically derived. The private key, on the other hand, is a long string of characters used to sign transactions and control your tokens. While the private key grants direct access to individual addresses, the seed phrase ensures access to all keys in your wallet.

How does a seed phrase work?

A seed phrase is more than just a random sequence of words – it’s based on the concept of cryptography and forms the foundation for accessing your wallet. The words come from a predefined list established in the so-called BIP39 standard. Since the seed phrase is linked to the wallet, your wallet can be restored at any time, even if the original device no longer works. What this means in concrete terms is explained in the next sections:

The BIP39 standard

Behind almost every modern seed phrase is the so-called BIP39 standard. BIP stands for “Bitcoin Improvement Proposal” and defines how a seed phrase is generated from a set of predefined words. BIP39 uses a word list with exactly 2,048 terms, from which a phrase of 12 or 24 words is generated, depending on the desired level of security. These words are not randomly chosen – rather, they are fixed protocols based on a cryptographic algorithm. The standardised structure makes it possible to restore wallets using a compatible seed phrase on different platforms – such as with software wallets like Electrum or hardware-based solutions. Thanks to its high compatibility, the BIP39 standard is now widely used and ensures interoperability across the crypto space.

How do I create a seed phrase?

A seed phrase is usually generated automatically by a wallet application. However, you can understand how the process works.

This is how to create a cryptocurrency wallet:

1. choose a type of wallet that suits your security needs and usage (e.g. self-custodial or hardware wallet).

2. find a trustworthy provider that offers security, user-friendliness and compatibility

3. download the wallet app and set it up according to your chosen wallet type.

4. create your wallet account, during which a wallet address and a private key are automatically generated.

5. write down the recovery phrase for your wallet and make sure to record the words exactly in the given order.

6. store your access data offline, meaning no digital storage on the cloud or smartphone.

7. test your wallet with a small transaction to ensure everything works correctly.

If you want to learn more about creating a wallet, feel free to read our guide on creating a crypto wallet.

Some wallets require additional verification of the seed phrase. This means that after generation, you must re-enter certain words in the correct order to confirm you’ve written them down accurately.

What is the significance of seed phrases?

Seed phrases are the central key to restoring wallets and are therefore essential for secure access to digital assets. Without a mnemonic, access to wallets and all stored tokens is permanently lost. Their significance lies primarily in the fact that seed phrases are the only way for holders to fully recover their wallet after a loss.

Unlike traditional passwords, seed phrases are not just access codes but form the basis for all cryptographic data within a wallet. Through a hierarchical tree structure, the phrase generates all private keys, which are in turn needed to sign transactions. This function is especially crucial for Bitcoin and other decentralised networks – as there are no central backups or recovery options. For every holder who manages and controls cryptocurrencies themselves, the seed phrase is therefore an indispensable element of self-custody.

Examples of seed phrases

A seed phrase usually consists of 12 or 24 words from a predefined list. The words may appear random, but they follow strictly defined cryptographic protocols.

Here are example seed phrases for illustration:

• 12 words:

yellow magic crisp borrow swing dragon palace claw chimney frost grass focus

• 24 words:

spirit ladder garbage village smooth basic hero float music pass cage deposit broom lumber cloud nurse twist version quarter maze rescue beach cannon skull puppy

Important: These examples are purely illustrative. In practice, every seed phrase should be unique and used privately only. Anyone who shares or reuses their real phrase risks complete loss of backups and thus their tokens or Bitcoins – secure recovery is no longer possible, even with wallets based on the HD standard.

Where can I securely store my seed phrases?

Seed phrases should always be stored offline and physically to protect them from theft, corruption and technical failures. The classic method is writing the mnemonic on paper – however, this medium is highly flammable and not a reliable emergency backup. More robust solutions include stainless steel or indestructible bromite, which protect the seed phrase even under extreme conditions and resist water, fire and mechanical pressure. Credit card-sized versions also offer discreet and compact storage.

Important: Never create digital backups or store the phrase online. Split backups, meaning the distribution of words across several secure locations, can also be sensible – especially for holders managing Bitcoin or other tokens long-term.

If you want to secure your seed phrase, various materials are available, each with its own pros and cons:

Backup types at a glance

• Stainless steel: particularly heat-resistant, rustproof and durable – ideal for long-term backups with high security.

• Bromite: extremely resilient and indestructible – suitable for storage under extreme conditions.

• Paper: simple and quickly accessible, but vulnerable to fire, water and wear – suitable only short term.

• Plastic: light and flexible, but not fireproof and prone to ageing – limited recommendation.

• Titanium: very resistant to heat and corrosion – a premium but more expensive alternative to stainless steel.

What happens if you lose your seed phrase?

Without the seed phrase, wallet recovery is no longer possible. Access to stored tokens, transactions and all data is permanently lost.

Since there’s no central authority where you can request a new seed phrase, secure storage is your responsibility as a holder. Especially with wallets like Electrum, which are based on the HD principle, the seed phrase is the only method of recovery. Without it, even advanced protocols are ineffective. That’s why you should store multiple physical backups in separate locations – combining various decentralised copies significantly increases protection.

Conclusion: Our tips for safely handling seed phrases

Seed phrases are the key component for security and self-custody when handling digital assets like Bitcoin. Anyone who protects them carefully ensures their wallet remains recoverable even if the device fails or is lost. Successful recovery depends solely on access to a working backup.

Here are our most important tips at a glance:

• Create multiple physical backups of your mnemonic.

• Avoid digital storage locations and online saving.

• Use a surface made of indestructible material to guard against fire, water and corrosion and inscribe the seed phrase with a special engraving pen.

• Choose compact credit card-sized formats for discreet storage.

• Distribute your backups across different physical locations.

• Use wallets like Electrum that follow common protocols.

• Remember: only holders with access to their seed phrase retain control.

More topics related to cryptocurrency

Want to learn more about Bitcoin, wallets, blockchain or secure backups? In the Bitpanda Academy, you’ll find numerous easy-to-understand guides and tutorials – from the basics to more complex topics. Whether you’re just starting or already experienced, the Academy helps you expand your knowledge of cryptocurrencies and move securely and confidently as a holder or trader.