Seed phrases
Twelve or twenty-four ordinary words that are, in the most literal sense, the money. How you store them is the whole of your security.
When you create a self-custody wallet it shows you a list of words and tells you to write them down. That list is a large random number encoded as vocabulary, and every key the wallet will ever use is derived from it by a published, deterministic procedure.
What this means in practice
Enter those words into any compatible wallet, anywhere in the world, and every address and balance reappears. The device is irrelevant — lose it, destroy it, replace it with a different manufacturer's. Which also means anyone who reads those words has taken everything, instantly, with no trace and no recourse.
Why words
The standard uses a fixed list of 2,048 words chosen so that no two share their first four letters and none are easily confused when spoken or written. A checksum is built in, so a mistyped phrase is usually rejected rather than silently opening an empty wallet. It is a human-error-tolerant encoding of a number nobody could copy correctly in hexadecimal.
Storage: what not to do
- A photograph. Phone backups sync to cloud services, which are accounts that can be compromised.
- A note in a password manager or email draft, for the same reason at one remove.
- A text file on any computer, ever.
- Typed into any website for any reason.
- Told to anyone offering to help you with a problem.
Storage: what works
- Written on paper, stored somewhere secure. Simple, and vulnerable to fire and water.
- Stamped into metal. Purpose-made plates exist and survive house fires. The standard answer for meaningful amounts.
- Split across locations. Two copies in different places protects against loss at the cost of doubling theft exposure. Which risk dominates depends on your circumstances.
- A passphrase in addition. Wallets support an extra word of your own choosing, which produces an entirely different set of addresses. Powerful, and forgetting it loses everything as surely as losing the phrase.
The inheritance problem
If you are the only person who knows where the backup is and how to use it, your holdings end when you do. This is a genuine and under-discussed failure mode, and the amounts already lost this way are substantial. A sealed letter with a trusted person, instructions held with a will, or a multi-signature arrangement requiring two of three keys are all workable. Doing nothing is a decision with a predictable outcome.
Testing the backup
A backup you have never restored from is an assumption. The safe test is to set up a new wallet from your written phrase on a separate device with no funds involved, confirm the addresses match, then wipe it. Discovering a transcription error this way costs an afternoon; discovering it when you need the backup costs everything.