Seed Phrase

Police body cam leaks suspect’s seed phrase during vehicle inspection

A viral video making rounds on Twitter showed two police officers searching a suspect’s car and coming across pieces of paper, one of which contained seed phrases.

While self-custody is considered the ultimate way to secure one’s funds, many fail to acknowledge the risks associated with physically storing seed phrases. A search conducted by the State Police agency for Nevada ended up making a suspect’s seed phrase public after being picked up by the body cam.

A viral video making rounds on Twitter showed two police officers searching a suspect’s car and coming across pieces of paper. It turns out that the suspect was a strong believer in self-custody as unfolding the pieces of paper revealed the suspect’s seed phrase, which was hand-written — a popular method to prevent online compromises.

Nevada State Police body cam records suspect’s seed phrase. Source: Twitter

As the incident got recorded by one of the officer’s body cameras, the suspect’s seed phrase has now become public information.

Binance CEO Changpeng “CZ” Zhao saw the video and warned investors about learning the various risks involved in different methods of storing cryptocurrencies. He said:

“I am a proponent of free choice. Feel free to hold your crypto anyway you wish. But learn the risks of each method.”

The video sparked conversations around the best way to store seed phrases, with the most popular suggestion being memorizing the seed phrase. While the idea of learning the seed phrase — a unique combination of 12 or 24 words — by heart sounds safe, CZ pointed out that lack of inheritance and the forgetfulness of the human mind are two of the biggest flaws when it comes to storing important information on the “brain wallet.”

Related: How to keep your cryptocurrency safe after the FTX collapse

The arrest of former FTX CEO Sam Bankman-Fried for alleged misappropriation of funds was perceived as a cue to rethink long-term storage strategies of cryptocurrencies.

While an immediate reaction was to pull out the funds from crypto exchanges, the CEOs came forward to reassure the investors’ fund’s safety regardless of where they intend to store their cryptocurrencies.

On the other side of the spectrum, Ray Youssef, the CEO of the crypto exchange Paxful, sided with the idea of Bitcoin (BTC) self-custody. He promised to send weekly reminders to all investors to move their funds away from the exchange.

“My sole responsibility is to help and serve you. That’s why today I’m messaging all of our [Paxful] users to move your Bitcoin to self-custody. You should not keep your saving on Paxful, or any exchange, and only keep what you trade here,” he stated.

Only 1% of people can handle crypto self-custody right now: Binance CEO

Changpeng Zhao’s comments come as billions of dollars of stablecoins continue to flow out of the Binance exchange.

Binance CEO Changpeng “CZ” Zhao has cautioned the crypto community about self-custody, suggesting that 99% of people choosing to take possession of their crypto will likely lose it one way or another. 

CZ has been been a supporter of self-custody for years, referring to it as a “fundamental human right,” but has always urged users to “do it right.” He published a “CZ’s Tips” on self-storing crypto in February 2020.

During a Binance-run Twitter Spaces on Dec. 14, the Binance CEO continued to urge caution for those using self-custody wallets, arguing that more often than not, security keys are not stored securely, backed up or properly encrypted:

“For most people, for 99% of people today, asking them to hold crypto on their own, they will end up losing it.”

CZ reiterated that holding crypto in one’s own wallet is “not risk-free” and postulated that “more people lose money holding their own — lose more crypto when they’re holding on their own than on a centralized exchange.”

“Most people are not able to back up their security keys; they will lose the device […] They will not have the proper encryption for their backup; they will write it on a piece of paper, someone else will see it, and they will steal those funds,” he explained.

The Binance executive also stated that even when self-custody funds are properly managed, “if a person passes away, they don’t have a way to give to their next of kin,” while custodians like Binance can implement a “standard operating procedure” to solve that problem,.

The Binance executive concluded that “different solutions have different risk profiles” and that it is up to the user to decide what is best for them.

Despite most of Binance’s operations being “centralized,” CZ iterated that the company remained “neutral” on its preference toward custody and self-custody solutions, having stated in an earlier Twitter Space discussion on Nov. 14 that he’d happily shut down the centralized cryptocurrency exchange if users moved to decentralized alternatives.

“If we can have a way to allow people to hold their own assets in their own custody securely and easily, that 99% of the general population can do it, centralized exchanges will not exist or probably don’t need to exist, which is great,” CZ said.

Related: Crypto community members discuss bank run on Binance

Binance’s latest Twitter Spaces event comes amid a turbulent time for the exchange, which has seen significant withdrawals over concerns about its balance sheet and potential incoming litigation.

The Wall Street Journal reported Dec. 11 that there were several red flags in Binance’s proof-of-reserves audit, while Reuters reported on Dec. 13 that the U.S. Department of Justice is nearing the end of a three-year investigation into Binance and could file criminal charges.

The last few days has seen a high volume of stablecoin outflows withdrawn from the trading platform, including $2.2 billion in outflows of stablecoins Binance USD (BUSD), Tether (USDT) and USD Coin (USDC) over a 24-hour period between Dec. 13-14, according to data from blockchain intelligence platform Glassnode.

Outflows of BUSD, USDT and USDC on Binance Over 24 Hour Period Dec. 13-14. Source: Glassnode.

Interestingly, Bitfinex’ed — a long-time Tether critic —shared a screenshot to its 98,000 Twitter followers on Dec. 14 of Binance offering 50% APR on staked USDT to its customers, alleging that the exchange may be looking to shore up its allegedly fast dwindling stablecoin reserves.

In the latest Twitter Space discussion, CZ attributed the weakened market sentiment — particularly with reference to custodial solutions — to the catastrophic fall of FTX.

What is a seed phrase and why is it important?

It’s crucial to remember your seed phrase, which is a string of random words produced by your cryptocurrency wallet when you initially set it up.

How to keep your seed phrase safe

A crypto seed phrase in the wrong hands can do damage, so it is advisable to always ensure it is safe. The following are some tips for ensuring your seed phrase is secure.

  • Never share your seed with anyone else: It’s extremely important that you never reveal your recovery phrase to anyone. Why? Because if someone else finds out your recovery phrase, they will be able to access — and therefore control — your crypto funds.
  • Make a note of it on paper and keep it in a secure location: This is the most old-fashioned way of storing your recovery phrase, but it’s still a perfectly valid option. You can either write it down by hand or print it out — just make sure that you keep it in a safe place where only you can access it. A fireproof and waterproof safe would be ideal.
  • Storing inside a Password Manager: A password manager is an encrypted digital vault that can store sensitive information like usernames, passwords, and recovery phrases. This way, you only have to remember one password (the password to your password manager) instead of dozens or hundreds of different ones. Some examples of password managers include Onepassword and Lastpass. Storing your recovery phrase in a password manager has several advantages, one of which is added security. Adding a secondary password — also known as a passphrase — users can create an even stronger and more secure backup.

If you want to be extra safe, store your recovery phrase in multiple locations. That way, even if one backup gets destroyed, you’ll still have another one intact.

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What happens if you lose a seed phrase?

Losing a seed phrase is really the worst-case scenario for a cryptocurrency owner. One cannot recover a wallet seed in case they lost or forgot it. 

Giving your seed phrase to someone or entering it on a website has no practical benefit as it may lead to losing your cryptocurrency assets. Additionally, avoiding writing a recovery phrase on a refrigerator may help you protect against theft. 

The best way of ensuring you don’t lose your seed phrase is by noting it down and keeping it safe. In addition, keep your seed phrase somewhere it cannot be destroyed by any element. But, can someone guess a seed phrase?

The seed phrase is generated randomly; not even the cryptocurrency user knows what word combination will be used to generate the seed phrase. Due to a seed phrase’s random characteristic, it is hard to guess a seed phrase. Something else that makes it challenging to know a seed phrase is that it consists of 12 to 24 words leaving no chances of getting all the words right.

Can a seed phrase be hacked?

In the crypto world, losing cryptocurrency is a nightmare for all cryptocurrency owners. Losing your seed phrase to an attacker means you can’t recover your crypto funds. 

Being in a digital world, crypto heists are tirelessly working to reap what they didn’t plant. The worst part you would want a hacker venturing into is your cryptocurrency wallet. As seen earlier, a seed phrase is a master key to accessing a cryptocurrency wallet, which means that in the wrong hands, damage is inevitable.

However, by having a large number of words in a seed phrase, it is hard to hack it. In order to access a seed phrase, phishing is the main method used. One way scammers try to get a seed phrase is by sending emails pretending to be customer support and request for a seed phrase or private key. 

Once the seed phrase lands in their hands, they can access a crypto wallet and steal everything in it. It is always advisable to keep your seed phrase private and never share it with anyone else.

Recovery phrase vs. private key

Despite being related to each other, the recovery phrase and private key are different. They both are used for securing cryptocurrency wallets. 

A recovery phrase is a crypto wallet recovery password. The recovery phrase is used for the recovery of a cryptocurrency wallet in case the owner forgot their password. A private key, on the other hand, is used to point to a blockchain address hence securing transactions. A private key is used for transacting cryptocurrencies by proving ownership.

In short, a recovery phrase is a master key to all of your crypto accounts. These words are what give you access to all of the private keys stored in your original wallet. The goal is to have full control over your assets. Having this phrase allows you to still access your blockchain assets even if you lose or damage your physical hardware device. But, how does a seed recovery phrase work? 

Simply put, users may access their crypto accounts from whatever wallet they choose — it’s like having a charger for every type of phone. Imagine the confusion if every wallet necessitated a different recovery phrase format. This would imply that your crypto assets would be entirely dependent on which sort of recovery phrase you’re using, leaving you no control over them.

How does a seed phrase look?

A seed phrase might be confusing and probably you might be wondering how a seed phrase looks and maybe how it is created. The seed phrase is generated by a cryptocurrency wallet and the user has no way of customizing it.

The words generated are derived from a list of 2048 words. So, how many words is a seed phrase? A seed phrase is made up of a long string consisting of a group of random words.

The words on a seed phrase are simplified so that the user can remember them, unlike if the seed phrase consisted of long numbers or special characters. 

The recovery phrase consists of 12 to 24 words like energy, road or open. To avoid errors, these randomly generated words do not include pairs like “man” and “men” in the same seed phrase. Bitcoin improvement proposal-(BIP)-39 in 2013 introduced these types of phrases and established a standard for deterministic wallets. Here is an imaginary 12-word seed phrase: Cry, planet, Loose, Typical, Humankind, Toddler, Anxiety, Difficult, Happy, Never, Alternative, Remorse.

A seed phrase controls all the private keys associated with a deterministic wallet. BIP-39 proposal makes major wallets cross-compatible, allowing the users to load the recovery phrase to a new BIP-39-compatible wallet to access the funds when they are lost or if you want to switch wallets.

What is a seed phrase?

A recovery phrase (also called a seed phrase) is a group of random words generated by the cryptocurrency wallet that allows you to access the crypto stored within. 

One can consider it as a wallet comparable to a password manager for crypto, and the recovery phrase to be similar to the master password. You’ll have access to all of the crypto linked with the wallet that created the phrase — even if you delete or lose it — as long as you remember your recovery phrase.

A seed phrase aids to recover a cryptocurrency wallet when a user forgets their password. The seed phrase can be said to be a crypto wallet’s master key. For example, if you had a hardware wallet and lost it or deleted your wallet from your computer, you can easily create a new wallet and use the seed phrase, which will recover your cryptocurrencies.