aantonop - Cryptocurrency Explained: What is a Mnemonic phrase? [Understanding Bitcoin Ethereum Crypto Keys]

Short Summary

Main recommendation: Treat a mnemonic phrase (also called a seed phrase) of 12 to 24 English words as the backup for your non-custodial wallet, since it encodes the same security-level number as a private key and can regenerate the entire wallet, across all cryptocurrencies and transactions. The phrase is drawn from the BIP39 standard's 2048-word dictionary, which lets a long number be written as readable words.

Key Points

• A mnemonic phrase is a number written as words: each word maps to an index from 1 to 2048 in the BIP39 dictionary, so a 24-word phrase is an encoding of a single large number.
• Because each of the 24 words has 2048 possible choices, a 24-word phrase has 2048^24 possible arrangements, which the speaker equates to roughly 2^264 (slightly larger than a 256-bit key because of a checksum).
• Guessing a 24-word phrase is therefore equivalent to guessing a bitcoin private key, which the speaker compares to picking one atom out of the observable universe.
• A derivation function starts from this one number and generates the same sequence of keys every time, which is why one phrase can restore an entire wallet with many cryptocurrencies and transactions.

Details Worth Noting

• Concrete instructions: When a non-custodial or hardware wallet is first set up, it will show you a 12 to 24 word phrase and ask you to back it up; write it down and keep it, since those words are what recover the wallet later.
• The dictionary has 2048 words, starting with "about" (index 1) and ending with "zebra" (index 2048, listed in alphabetical order), and the phrase can be expressed in several languages, though the speaker used English.
• The BIP39 standard was proposed by Satoshi Labs and developed from an idea first created by the authors of the Electrum wallet; the speaker notes "seed phrase" is informal terminology.
• Words are easier to read, write down, and re-enter than a 77-digit decimal or 256-bit binary private key, which is the practical reason mnemonics exist.
• A bitcoin private key is a 77-digit decimal number, corresponding to about 10^77 possibilities.

Bottom Line

A mnemonic phrase is a human-readable encoding of a private-key-sized number, so protecting those words is as important as protecting the key itself.