Definition
A recovery phrase (sometimes known as a seed phrase) is a series of words generated by your
cryptocurrency wallet that gives you access to the crypto associated with that wallet. Think
of a wallet as being similar to a password manager for crypto, and the recovery phrase as
being like the master password. As long as you have your recovery phrase, you’ll have access
to all of the crypto associated with the wallet that generated the phrase — even if you
delete or lose the wallet.
One of the basic principles of cryptocurrency
is the idea of “self-sovereignty”: you should be able to access your crypto without having to
prove your identity, and you shouldn't have to rely on a bank or other institution to
store it safely. The technology cryptocurrencies like Bitcoin and Ethereum use to accomplish this is the blockchain — which both stores and secures your
crypto using a peer-to-peer network of computers spread around the world.
How does the blockchain know which crypto is
yours? It uses algorithmically generated password-like codes that only the holder has access
to. When you first set up a crypto wallet — like Koinmex Wallet — it generates a string of simple
words, which is your recovery phrase (sometimes also known as a seed phrase). The wallet also
uses the recovery phrase to algorithmically create private keys — which allow you to send or spend
your crypto. Think of the wallet as being like a password manager for crypto, and the seed
phrase as being the master password.
The reason recovery phrase is a series of 12
to 24 simple words (like “army,” “energy,” “fabric,” “lucky,” “opera,” “stereo,” “trash,” or
“void”) rather than a numeric password is because long strings of numbers are difficult for
humans to remember or even transcribe correctly — think of how hard it can be to input a
too-long wifi password. Your recovery phrase unlocks your wallet, along with the private keys
associated with all the crypto in the wallet.
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Since only you know the recovery phrase,
keeping track of it is of the utmost importance
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Anyone with your recovery phrase can gain
access to your crypto.
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If you delete or lose your wallet without
carefully saving your recovery phrase, you lose access to your crypto. (Just talk to Stefan Thomas, who lost access to hundreds of
millions of dollars worth of bitcoin.)
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Learn more about setting up a crypto wallet.
How does a recovery phrase work?
When you create a crypto wallet, a recovery
phrase is automatically generated. The recovery phrase is a representation of a long string of
random numbers — and your wallet uses it to generate the private keys that let you send and
spend your crypto.
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The reason the recovery phrase is given
to you in word form (rather than a long string of random numbers) is because humans are
better at remembering and interacting with a series of words. But you shouldn’t rely on
your memory for storing your recovery phrases. What are some better ways? See the section
on securing your recovery phrases below.
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Each recovery phrase is pulled from a
list of 2,048 simple words. The recovery phrase idea was widely adopted after 2013’s Bitcoin Improvement Proposal 39, which
established a standard for a “deterministic wallet” — which most wallets are now — in
which one recovery phrase would control all of the private keys held in the wallet.
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The standard also makes major wallets
intercompatible: if you want to switch wallets, you just need to enter your recovery
phrase into the new wallet and your crypto will be available there.
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If you lose or delete a wallet, you can
even recreate it using your recovery phrase alone.
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Keeping your recovery phrase safe from
hackers, phishing attacks, or just simple loss is absolutely crucial.
How can you store a recovery phrase safely?
There’s a wide range of strategies about how
to best secure recovery phrases, which tend to vary based on how much crypto you have and how
much you value security vs. convenience.
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One very powerful way to secure a
recovery phrase would be to split it between safe deposit boxes in multiple locations
(making sure there’s redundancy in case something were to happen to any of the locations).
Obviously this is not very convenient.
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Some people use specialized services to
engrave recovery phrases into durable materials like stainless steel.
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For many people, simply writing your
recovery phrase down and keeping copies in more than one safe location is a solid
approach.
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Using the mobile version of Koinmex
Wallet (which is separate from the main Koinmex app you use to buy or sell crypto) you
can opt in to the encrypted Google Drive or iCloud recover-phrase backup feature, which
stores an encrypted version of your recovery phrase in the cloud. You should also keep a
copy of your recovery phrase somewhere safely offline.
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As long as you have your recovery phrase,
you have your crypto. If you lose a hardware wallet on a bus or break a phone containing a
software wallet, you haven’t lost your crypto — you can simply enter your recovery phrase
into another wallet.
What happens if you lose your recovery
phrase?
If you accidentally throw out the scrap of
paper your recovery phrase is written on, forget which book you hid it in, or die without
passing it on to an heir, you lose access to your crypto. And if someone steals your recovery
phrase, your cryptocurrency will remain safely stored on the blockchain, but you (or your
heirs) won’t have any way to access it. So keep your recovery phrase safe! If you lose your
recovery phrase you lose access to your crypto.
If I’d prefer not to manage my recovery
phrase, are there other options?
Sure. If you buy crypto via Koinmex, you
don’t actually have to immediately move it to a separate wallet (or ever, it’s up to you).
Instead, you might choose to leave it in your Koinmex account, in which case Koinmex
automatically holds on to it via a “hosted wallet.”
As your holdings grow, you’ll want to at
least explore the main security options available — including moving some of your crypto from
your main Koinmex account into a Koinmex Vault, which adds a layer of protection without
requiring you to manage a recovery phrase or private keys. (You can also move crypto from a
Koinmex Wallet to Koinmex Vault and vice versa if you want to take a hybrid approach.)
What’s the difference between a recovery
phrase and a private key?
Private keys allow you to send or spend some
of your Bitcoin, Ethereum, or other crypto — they’re algorithmically derived from the long
string of numbers represented by your seed phrase.
Your recovery phrase gives you access to your
wallet and all the private keys in the wallet. You can think of a crypto wallet as being like
a password manager for your crypto — as long as you have your master password (the recovery
phrase) you have access to all the associated crypto.