So, you recently signed up on a cryptocurrency exchange, registered for a wallet, bought or traded in some cryptocurrency. That’s all great, but have you given any thought to how secure your cryptocurrencies are?
If you have thought long and hard about the security of your cryptocurrencies, you might have already gotten yourself a Hierarchical Deterministic wallet or an HD wallet.
These wallets are far more secure and use a unique mechanism to help you recover your balance if the computer hosting the wallet goes offline. But what are they? Let’s find out.
Mnemonic Phrases and Passphrases
HD or Hierarchical Deterministic wallets use Mnemonic Phrases and Mnemonic Passphrases for securely storing coins.
When these were not a thing, the storage of cryptocurrencies like Bitcoin was a tedious task. The users needed to memorize or store long strings of private keys to ensure security.
Usually, users would write them down on a hardware wallet, but these long strings were too much to handle for most people.
Enter, Mnemonic Phrases.
A mnemonic phrase, mnemonic seed, or a mnemonic recovery phrase is a string of words used in HD wallets in order to recover coins.
When you are in the initial setup phase of such a wallet, the wallet will ask you to note down a phrase of precisely 12, 18, or 24 words.
If your data is lost by loss of wallet, damage to the data in the wallet, or the device hosting the wallet, this phrase can be used to recover it.
Generation of Mnemonic Phrases
Mnemonic phrases are selected at random from the jargon of 2048 words available to the wallet while generating the account.
These selected words are then converted into numbers that create a seed for recovering the data if something bad happens.
The standard used for the 2048 word-dictionary is called the BIP39 standard; mnemonic phrases are any permutation of the English words listed.
Hence, a 12-word phrase has a possible combination of 2048^12, which is equal to 2^132, and thus we can say that the mnemonic phrases have 132-bit security.
But as the phrases are not completely random, we end up with 128-bit security instead, which perfectly matches a Bitcoin private passkey’s security.
The mnemonic passphrase acts like a second level of security to the mnemonic phrase that every wallet uses. Most of the cryptocurrency wallets make the users set an additional password for an added layer of protection.
This password is called the mnemonic passphrase for that particular mnemonic phrase. Users can recover data from a lost wallet only if the user remembers or knows the mnemonic phrase as well as the mnemonic passphrase associated with it.
Note: the wallet generates the Mnemonic phrase, but the Mnemonic passphrase is user-defined.
As the user controls the generation of the mnemonic passphrase, it is recommended to select something that is difficult to guess.
Using given names, names of pets or birthplaces, and birthdates is likely to be guessable. In case the user does not provide any mnemonic passphrase, an empty string is used.
Storing Mnemonic Phase and Passphrases
In case of an unlikely loss of wallet data due to corruption, hack, damage to the device hosting the wallet, mnemonic phrase and passphrase are the only way to recover your valuable cryptocurrencies.
But if you lose those as well, there is nothing that can bring any data back. Hence, you would like to store both the Mnemonic phrase as well as the passphrase in a secure location.
Most users like to write both of them down on a piece of paper and keep the paper at a secure location.
In case anyone with malicious intent gets access to these phrases, they can recover your wallet without the need for your authorization and can steal everything in your wallet. Thus, storing them securely is a must.
You should definitely avoid having any digital copies of the phrase too. Writing the passphrase on a word, excel, or any other form of google or digital document should be considered as a bad exercise.
With the increase in cryptocurrency prices and the overall craze in the mining world, cryptocurrency wallet security is at the highest risk ever.
In such conditions, with increasing risk in hacking, phishing, and other criminal activities, investors and wallet holders should take as much precaution as possible to ensure the safety of their funds. Mnemonic phrases and passphrases are just one of the many such security implementations.
I hope this article helps you and if you have any queries related to it then do leave your comment below. If you have not joined our community then you can now. We are very active there and have been sharing important information there.
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