Understanding Public Addresses, Private Keys, and Seed Phrases.

Many people find it challenging to grasp the concept of public addresses, private keys, and seed phrases, which is understandable considering the poor user experience. In this short article, I will attempt to provide a simple explanation of these terms and their impact on the security of your funds, starting from the moment you download a self-custody wallet.

Once you've downloaded a self-custody wallet and set it up, the next step is to store your 12 seed phrases. But what does this actually mean?

When you create a wallet, the software generates a seed phrase consisting of 12 secret recovery words. These words are used to generate a public address, which is accompanied by a private key. The public address is where you can receive cryptocurrency, while the private key is what you need to access and transfer your funds.

The beauty of seed phrases is that you can use them to create multiple wallets.. Let's say you want a separate wallet for your personal and business use. You don't need to download a new app or remember 12 new words. Instead, you can create a second wallet within the same app using your existing seed phrase. Each new wallet will have its own public address and private key, but all are tied to the same seed phrase.

However, with great power comes great responsibility. Losing your seed phrase or private key can result in the loss of your funds. But, there are ways to recover your assets.

If you lose the private key for wallet 1, you can still recover the funds with your seed phrase. This is because the seed phrase is what generates the private key.

If you lose your seed phrase but have the private keys for both wallets, you can still recover your funds. This is because the private keys are what allow you to access your wallets.

However, if you lose both the seed phrase and the private key for wallet 1, then you have lost access to that wallet. But if you have the private key for wallet 2, you can still recover those funds.

The tree structure of a wallet, source https://www.mtpelerin.com

Besides loosing your recovery phrase, there is also the risk of someone stealing it.
Some wallets, like Trezor, have added an extra layer of security to address this vulnerability. They offer the option of adding a 13th word to your seed phrase, like a password. That way, even if someone sees your seed phrase, they won't be able to access your wallets without the 13th word. Just make sure you don't save the 13th word with the other 12!

In my upcoming article, I will analyze and compare the most secure and user-friendly Bitcoin wallets available in the market.