Key takeaways
Private keys and seed phrases are two vital parts of crypto wallet management.
The former is a method of controlling your cryptocurrencies, while the latter is a recovery method.
Both private keys and seed phrases offer security, though in vastly different ways.
Other crypto storage options include seedless wallets and hierarchical deterministic wallets.
The primary method of storing your cryptocurrency is through a crypto wallet. Wallet management is a skill of its own, and understanding how it works is a critical part of keeping your funds safe.
This article will cover private keys and seed phrases — the two crucial components of wallet management — and how to use them to ensure your funds remain as secure as possible.
What is a private key in crypto?
Think of private keys in cryptocurrency as the password to your crypto wallet. The key consists of 64 characters in hexadecimal format, comprising the numbers 0-9 and the letters a-f.
Here’s a hypothetical example:
3f8e49a12b7c9d0ef45ab67d89c12345678abcde1234f67890abcdef123456789
Every private key comes with a public key, which is similar to an email address. You give out your public key to send and receive crypto while using your private key to access the assets, just as you give out your email address to receive mail while using your password to access it.
If you lose your password on a centralized platform, they can reset it for you. This also means that the exchange can access your password in their database. They can manipulate it as they see fit, and it’s also exposed if the exchange comes under threat.
The trade-off with a private key is that you own it. No one sees or has any access to it, but this also means you’re in control of its safety. As a result, private key crypto security is paramount. If you somehow lose your private key, there’s only one recovery method. It’s called a seed phrase.
Did you know? Public keys are derived from private keys, meaning you can always find a wallet’s public key if you have its private key. Despite the correlation between private keys vs public keys, you cannot find a wallet’s private key with its public key.
What is a seed phrase in crypto?
A seed phrase, also known as a recovery or mnemonic phrase, is a set of 12 to 24 words that serves as a backup to your crypto wallet’s private key.
A hypothetical example of a seed phrase:
start water plane paper light forest ocean boat highway screen growth school
Each of these words represents a section of your private key; you should have them written down somewhere secure. If you ever lose access to your crypto wallet, you can acquire a new one and recover your old assets by inputting these words in their exact order.
This is your only form of recovery, so keep it just as safe as your private key.
Did you know? Cryptographers Whitfield Diffie and Martin Hellman introduced the idea of public and private keys in 1976 via their paper “New Directions in Cryptography.”
Interestingly, the words in most seed phrases aren’t random. They come from a list of 2048 words pulled from Bitcoin Improvement Protocol 39 (BIP-39). The majority of cryptocurrency wallets pull from this list. Wallets that don’t use BIP-39 may generate seed phrases and private keys through their own lists, or create an algorithm that generates words outside of the BIP-39 list.
How private keys and seed phrases work
While private keys and seed phrases are crucial to your wallet security, they serve vastly different purposes.
When you create a crypto wallet, it generates both a private key and a seed phrase.
Private keys
Private keys represent complete control over a wallet’s holdings. You will hardly interact with a private key as most of its processes, such as signing for transactions, are handled automatically. Your private key is typically stored within your cryptocurrency wallet software. It’s usually located in the “Settings,” “Security” or “Wallet Information” section.
If you’d like, most wallets let you export your private key, providing you with a copy of it so you can import your wallet to another platform.
Of course, if you export your private key you must keep it as safe as possible to prevent theft. There aren’t many solutions in the crypto wallet private key recovery department.
Seed phrases
When you sign up for a cryptocurrency wallet, you’ll typically be asked to write down a seed phrase. A reliable wallet will also prompt you to re-enter the seed phrase on the next page to confirm you’ve recorded it correctly.
If you lose access to your wallet, you can recover your funds by entering the seed phrase into another wallet. Some hardware wallets even include a dedicated piece of paper to store your seed phrase securely.
Did you know? Private keys are not used for sending or receiving cryptocurrency transactions. They are only used to prove ownership and access your funds within your wallet. The public key (your wallet address), which is derived from the private key, is used for transactions.
Key differences between private keys and seed phrases
As discussed above, private keys are like passwords for your cryptocurrency wallet, whereas seed phrases are like secret codes that you can use to remember or recover your private key if you forget it.
Here is a quick summary of the key differences between private keys and seed phrases.
Seed phrase vs private key: Which is more secure?
Both methods are secure. The primary difference between private keys and seed phrases is what they’re used for.
As mentioned, private keys for crypto wallets are 64-digit codes made up of letters and numbers, making them very difficult for bad actors to crack. The encryption method is simply too strong. Still, it’s worth noting that private keys are stored digitally if you have an online or mobile wallet.
This means they’re vulnerable to threats, even if the risk seems small. Storing private keys securely is vital. Using a hardware wallet is one way to keep them more secure.
While you can lose the piece of paper your seed phrase is written on, or someone can steal it, it’s much easier to protect something physical because you can store it in a safe or bury it underground.
That said, if someone sees it, a seed phrase is much easier to memorize than a private key. Storing seed phrases securely is just as important as private key storage.
Either way, keep both security methods as safe as you can. Losing access to either means losing access to your funds.
If you prefer to avoid seed phrases altogether, consider alternative wallet types:
Seedless crypto wallet
A seedless crypto wallet typically relies on a multi-signature security process, which requires more than one signature for every transaction.
For example, say you want to send money to a company for goods or services. Instead of requiring a single private key signature like most wallets, you need the approval of multiple verified devices.
One device might be your mobile phone, while the other could be your partner’s tablet. The transaction cannot go through until both devices approve it, creating a secure defense network. This multi-signature approach removes the need for a seed phrase or other recovery option, as you’re unlikely to lose access to every device in a seedless network.
Hierarchical deterministic wallet
A hierarchical deterministic (HD) wallet keeps your funds secure through a hierarchy of public and private keys generated from a single seed phrase. Each key that the seed phrase generates is called a child key, and those child keys can generate grandchild keys, so on and so forth.
You can use each key for whatever purpose you’d like. For example, you may use one pair of private and public keys to transact with your friend, while you would generate another to send money to a company.
This deluge of key pairs makes it almost impossible for anyone to track your wallet’s transaction history. Even if a bad actor acquires one of these private keys, they cannot access the rest of your pairs.
These key pairs are also easy to manage, requiring only the original seed phrase from which every key pair is derived.
Best practices for storing private keys and seed phrases
Private keys
Investing in a hardware wallet is one surefire way to keep your private keys a little safer. Hardware wallets are small USB sticks that remain offline when you don’t plug them in. That lack of online connection makes your private keys safer than an always-online, exposed wallet.
These commercialized physical devices, while offering a higher level of security compared to online wallets, can still pose risks.
Seed phrases
After writing down your seed phrase, laminate the paper so you can’t tear it. Never keep your seed phrase in a digital place; if you absolutely have to, try to find a secure password manager or other encrypted storage method.
In some cases, it’s best to have multiple copies of your seed phrase. If you have friends and family you can trust, give them each a copy in case you lose your own.
You can even engrave your seed phrase into a metal plate or other form of inscription, protecting it from damage.
Did you know? You can generate a seed phrase manually using the BIP-39 word list. Simply pick some words from the list at random, or use dice rolls to increase the uncertainty.
Choosing between private keys and seed phrases
Choosing between private keys and seed phrases for your cryptocurrency wallet depends on your specific needs and preferences.
Both options give you a different level of control over your crypto assets, and it’s vital that you keep them as safe as you can. Choose private keys for direct access and security, or seed phrases for ease of use and physical storage. Consider hardware wallets and multi-signature setups for added security.
Still, the best choice for you depends on your individual circumstances and risk tolerance. Consider your security preferences, ease of use requirements and the specific features offered by different wallet types.
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