What is a mnemonic phrase / recovery phrase and how does it work?
Mnemonic phrases, sometimes referred to as recovery phrases or seed phrases, are 12-24 word sequences that enable an individual or institution to access funds in a non-custodial wallet.
This article breaks down what mnemonic phrases are and how they work but first, let’s break down the focal points of any non-custodial, digital wallet – private keys and public keys.
- A single mnemonic phrase can access a near infinite number of different wallet accounts.
- Inputting a mnemonic phrase to access the contents of a digital wallet will always result in the same sequence of accounts being generated from it.
- Mnemonic Phrases unlock private keys.
- Private Keys unlock digital wallets.
- Public Keys represent digital wallets.
BIP = Bitcoin Improvement Proposals. These are proposed changes to how the Bitcoin network operates. Some have had lasting effects on the standards adopted by other blockchains like Solana and Ethereum.
- BIP-32: Describes how a single mnemonic can access multiple private keys.
- BIP-39: Describes how mnemonic phrases are generated.
- BIP-44: Describes the specific BIP-32 hierarchy to use.
A private key is information used to access a digital wallet. Digital wallets hold digital assets such as cryptocurrencies or NFTs and anyone with access to a private key has access to the contents of the associated digital wallet. Private keys are accessed via mnemonic phrases and keystore files. A private key can be compared to the physical key required to unlock a safety deposit box or the password to an email account.
When a digital wallet is generated, a new account is created for the blockchain that the wallet is connected to. When tokens are sent from one digital wallet to another, the sender must input the public key of the receiver’s wallet. A Public key can be compared to the email address associated with an email account.
A public key can be calculated from a private key very easily, however calculating the private key from a public key is impossible. In order to access the private key (which enables access to funds within a digital wallet), there needs to be another sort of key, or seed.
Cue recovery / seed / mnemonic phrases. They all refer to the same thing.
Mnemonic phrases are word sequences that enable access to private keys.
Some wallets utilize both a mnemonic phrase and a password. In the event that the password is forgotten or misplaced, the mnemonic phrase can restore access to the wallet allowing the holder of the mnemonic phrase to set a new password if desired.
Anyone with access to the mnemonic phrase has access to the funds of an associated wallet and this is why it is imperative that wallet owners document their mnemonic phrases in a secure location.
Ok, but how do mnemonic phrases work?
Most mnemonic phrases are automatically generated through Bitcoin’s BIP-39 specification.
To start, entropy – or randomness, is encoded in multiples of 32 bits. A bit is a single unit of information with a value of 1 or 0. The bits are split into groups and are then encoded with a number ranging from 0-2047. These numbers are cross referenced with a word list and a mnemonic sentence is born. This sentence is converted into a mnemonic seed phrase using the PBKDF2 hash function which helps reduce the effectiveness of brute-force attacks. For a more detailed explanation of this process, refer to this article or BIP-39’s documentation.
Essentially, the more words in the mnemonic phrase, the higher level of security. Here are examples of word lists in English and Chinese to give an idea of what to expect. A typical 12 word mnemonic phrase in english looks like the following:
accident creek fat promote used figure world zebra abstract dilemma hawk grow
BIP-32 & BIP-44
A single key cryptographically accessing an assortment of public keys makes a wallet hierarchically deterministic.
BIP-32: Hierarchical Deterministic Wallets
BIP-32 defines the structure of hierarchical deterministic wallets.
Using elliptic curve cryptography, one can calculate a public key without revealing the private key. The single private key can also be used to generate a nearly infinite set of public keys, each being accessible by various derivation paths which are required for a wallet to hold more than one token.
For most users, accessing more than the recommended derivation path of a digital wallet is not necessary. The user interface of most wallets will either not require a derivation specification or it will give users the option to choose which derivation path to access – often with the option to choose a recommended path.
BIP 44: Derivation Paths for P2PKH
Each token has its own derivation path. This can become cumbersome to the user if they were required to individually access each asset in a multi-asset wallet. Instead, BIP-32 introduced the ability of a single private key to unlock more than one public key.
BIP-44 goes ahead and defines the specific hierarchy to use as described by an algorithm detailed in BIP-32. This means that different derivations of a wallet will comply with the following format:
Hierarchical deterministic wallets are identified with the BIP-44 reference under purpose’.
For example: m/44’/60/’0’/1’/8’ = The 9th address at change level 1 (addresses begin at 0).
Technology is one of those industries where innovation is constantly iterated upon. These iterations enable higher levels of sophistication to go on behind the scenes, ultimately enabling a utilitarian and user friendly experience upfront. Cryptography is the backbone of the crypto industry and is a prime example of this phenomenon.
As the technology behind crypto became more sophisticated, the barriers to entry lessened and more people began participating. Before BIP-32, there were burdensome tasks and financially insecure practices in play regarding digital wallets and derivation paths that prevented many people who were not computer-savvy from participating. Once BIP-32,39, and 44 were widely implemented, users could now access a nearly limitless number of digital assets (tokens & NFTs) all from one user-friendly mnemonic device.
In regards to barriers of entry, technology is most definitely deflationary.