May 29, 2024

What Is a Crypto Recovery Phrase?

What Is a Crypto Recovery Phrase?

How to Create and Secure Your Crypto Recovery Phrase

There's a well-known saying in the crypto space: "Not your keys, not your coins." Your cryptocurrency is only completely safe when you hold it yourself. If you keep it on an exchange and it goes bankrupt, you could lose everything.

To hold cryptocurrency yourself, you'll have to create a self-custody wallet. Like other crypto wallets, self-custodial wallets don't just use passwords to keep your holdings safe. They also use a recovery phrase — also known as a seed phrase.

Your crypto recovery phrase is the key that unlocks your wallet. It's used to re-initialize your wallet on any device. Having your recovery phrase ensures you'll always be able to access your wallet.

Safeguarding your recovery phrase is the most critical part of holding cryptocurrency. Scammers regularly target people to get their crypto recovery phrase. Anyone with your recovery phrase can take control of your crypto wallet.

What Is a "Recovery Phrase"?

The recovery phrase is what you use to prove ownership of your crypto wallet. It is a randomized string of 12 words that you'll need to initialize your wallet. As long as you keep your phrase safe, your wallet will never disappear.

If your wallet is deleted from your device, you can use your crypto recovery phrase to access it again. 

How Does a Recovery Phrase Work?

You are given your recovery phrase when first creating your crypto wallet. The phrase is randomly created for each new wallet that is opened. When you get it, make sure you write it down and guard it with your life. Your whole wallet can be controlled with the crypto recovery phrase.

When you need to open your wallet on a new device or browser, you can enter it, and your wallet will be initialized. Always ensure you are on the right app or website before entering the phrase. Fake websites will try to steal your recovery phrase.

How Can a Recovery Phrase be Stored Safely?

Storing your recovery phrase means you have to plan for the long term. You want it somewhere it can never be stolen or destroyed. Always know where your recovery phrase is stored.

Here are several places people keep their recovery phrases, ordered from least to most secure:

On Their Phone

Avoid ever storing your crypto recovery phrase on your phone. Never store your recovery phrase digitally. Don't take a screenshot of it or type it in a document.

This protects your wallet in case your phone is stolen. Otherwise, if someone hacked into your phone, they would immediately have access to your wallet too.

At Their Home

People often store their crypto recovery phrase at home. If you choose this option, keep it in a fireproof safe. You'll want to keep it somewhere that a fire or burglar can't get to.

For high-value wallets, some even inscribe their phrase onto metal to make sure it never gets burned or destroyed.

In a Safe Deposit Box

A safe deposit box is the most secure place to store your recovery phrase. Banks are required by law to keep your safe deposit box secure. Their entire purpose is to keep things safe.

By keeping it in a safe deposit box at the bank, you can ensure no one else will access it. When you store a lot of funds in crypto wallets, having the best security is essential.

How Can You Protect Your Recovery Phrase From Scammers?

All wallets have a crypto recovery phrase, and some wallets hold millions, or even billions, of dollars in crypto. Because of this, they are a prime target for hackers and scammers of all kinds.

Here are some of the ways they might try to get your recovery phrase:

1. Direct Messages

Scammers often send direct messages on social media to trick you into giving them your crypto recovery phrase. All unsolicited messages should be ignored on these sites. 

Sometimes they pose as a "support team" for a crypto company to trick people. Always contact customer support using their website instead of social media.

2. Phishing Emails

Another common way people lose their crypto recovery phrase is by opening a phishing email. These emails involve the scammer pretending to be from a reputable company and requesting your recovery phrase.

Any email making this request should be treated as suspicious. Always double-check each email's sender, especially the domain their email address is from.

Never click the links in emails from crypto companies. Instead, navigate to the correct website yourself. That way, you’re less likely to fall prey to this type of scam.

3. Fake Websites

The emails typically have a link to a fake website that's designed to look legitimate. It might appear to be from your wallet provider and ask for your seed phrase.

Always check the domain of each website you go to. Especially involving crypto, make sure you're on the right website before you do anything with your recovery phrase.

What Can You Do If You Lose Your Recovery Phrase?

Losing your crypto recovery phrase means you could lose access to your crypto wallet. If you delete the app or your hard drive breaks, you won't get your wallet back. You have to deal with this problem as soon as it happens. 

If your secret recovery phrase was written down and you lose that paper, you'll have to create a new wallet. Move all your assets to your new wallet in case someone else finds your recovery phrase.

If your crypto recovery phrase is stolen, securing your wallet becomes an emergency. Time is of the essence in this situation, you'll need to create a new wallet and transfer your holdings immediately. 

If you forgot to write it down when you created your wallet, there's still hope! You can find your recovery phrase in your wallet's settings. You'll have to enter your PIN or password to view your recovery phrase again. This time, make sure you keep it safe!

Why Are Recovery Phrases Used?

Your recovery phrase is very different from a password. The unique design of this system makes crypto wallets much more difficult to hack.

According to Coindesk, each recovery phrase is randomly drawn from a list of 2,048 words. Each phrase is unique and isn't repeatedly used like passwords often are.

The crypto recovery phrase is created, or "seeded," the moment each new wallet is created. That's why it's also called a "seed phrase."

By making it with the wallet, you can be sure that no one but you has the seed phrase. Even the company that created the crypto wallet can't access your seed phrase. That's why it's solely your responsibility to secure your seed phrase.

Now It's Up to You

Today, you've learned what recovery phrases are and why they are used to secure self-custodial crypto wallets. You've also learned the most important thing about a crypto recovery phrase, which is how to keep it safe. Keeping your phrase secure is how you protect your wallet.

When you own crypto, you are your own bank. Your wallet is like a bank vault. It's your job to keep robbers from breaking into the vault. You can't even let your friends into the vault.

Don't share your crypto recovery phrase with anyone, ever. Keep it as safe as you possibly can. Put it somewhere no one else can ever find it. Keeping it at an actual bank is the best way to ensure it remains for your eyes only.

Remember, your crypto recovery phrase IS your wallet. Anyone who has it can access your wallet and transfer your funds. Now you have the tools to ensure this doesn't happen.

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