TL;DR: Bitcoin uses a private key, which is a lengthy 256-bit number that can be challenging to recall and input accurately. To make things easier, Bitcoin uses a recovery phrase, sometimes called a "seed", from which every private key is derived. Store your bitcoin safely by using a signing device to generate a seed, write the seed words down in the correct order on a durable material, and consider adding a passphrase for extra security. It is best to avoid using electronic devices to store or reveal seed words, as they may be vulnerable to cyber-attacks. Understanding the basics of private keys and seeds helps avoid costly mistakes.
A private key is a massive 256-bit number that is difficult to remember or input without errors. To simplify this process, Bitcoin uses a recovery phrase, sometimes called a "seed," a list of plain English words from which every private key is derived (details in BIP-39).
Many wallets, including the Blockstream app and BlueWallet, also let you add an optional BIP39 passphrase to the recovery phrase for extra security.
Though the process sounds complex, you will only need to focus on the word list and the optional passphrase. Understanding the basics helps avoid mistakes that can be hard to fix, such as incorrect word order or passphrase capitalization. If you add an optional passphrase, it is essential to know that recovery then requires both the seed words and that passphrase; with no passphrase set, the seed words alone restore the wallet.
For those less technical, you can think of the recovery phrase as your private key. Technically, it is not, but everything can be derived from the seed. Just remember that the seed words must be in the correct order!
To store your bitcoin safely, follow these steps:
- Use a reliable source of randomness (entropy) to create a secure private key. A signing device or "hardware wallet" is recommended for this purpose, as they are optimized for generating seeds. Set a PIN code or password for the device and remember it or write it down.
- When the device generates a new wallet, it will display the seed words in sequence. Write these seed words down manually on paper or, ideally, on a metal plate. Ensure you write them in the correct order and avoid using any electronic devices during this process. Never type the seed words into a computer, take photos or screenshots, or expose them to others or cameras.
- If you are confident you will not forget or misplace it, consider adding a passphrase to your recovery phrase. This allows you to store the recovery phrase and passphrase separately, increasing security. With the same seed words and different passphrases, you can also create separate wallets for various purposes, such as separate "accounts" for hot and cold storage or a honeypot account to protect your funds. Passphrases are powerful tools, but do not lose them!
Please be cognizant of the fact that due to its digital nature and inherent value, Bitcoin can potentially be a magnet for attackers. As a best practice, avoid storing your recovery phrases electronically, as malicious actors may try to access them. Implementing these safety measures cannot be overstated, as they serve as crucial defenses in protecting and storing your coins.