BIP39 Explained - How do Seed Phrases, Private Keys, and Addresses work?

bip or bip is an acronym that stands for Bitcoin Improvement proposal and anytime someone creates a proposal the idea is assigned a number today we're going to be looking at bip 39 which outlines a standard way to create and backup a crypto wallet using a nemonic phrase welcome to whiteboard crypto the number one YouTube channel for crypto education here we explain topics of the cryptocurrency world using analogies simple stories and examples so that anyone can easily understand them in this video I'm going to be explaining what bip 39 is and how it works before we get into this video though if you're not sure what a crypto wallet is you'll benefit from the basic understanding of how they work which luckily for you we've already whipped together one perfect for you titled what is a cryptocurrency wallet after you watch that video in the description you'll know that a wallet Works basically by having a seed phrase which controls the wallet and only the wallet owner knows each account in the wallet will have a public key which you share essentially an address for your funds now Whoever has control of the seed phrase has control of your private Keys which control each address in the wallet which is where the saying not your keys not your crypto comes from it's really important to keep your seed phrase and your private Keys private but how we achieve this is actually kind of complicated and there have been many different ways proposed bip 39 is a community proposal describing How seed phrases can be generated and how to Simply back up and recover your crypto wallet it was passed and is now used on the Bitcoin blockchain but because of its Simplicity and usefulness it's also used on many other chains before we can get started know that a wallet is a way to hold a group of private and public keys so that you can effectively have access to many different crypto accounts in order to understand bip 39 we need to understand the differences between a deterministic wallet and a non-deterministic wallet now these are just fancy words but the key different lies in how private keys are generated and managed a private key is basically a long string of numbers and letters that is generated cryptographically let's break down how these are generated a deterministic wallet is a wallet which requires a seed phrase to create the same set of private and public key pairs in the exact same order based on the seed phrase this is the most popular kind of crypto wallet because as long as you have the seed phrase somewhere safe you can always get access to your wallet bip 39 is one way to generate a deterministic wallet it doesn't matter if you use the seed phrase on your phone or your laptop or your Ledger or if you do it today or 3 years from now that seed phrase using the bip 39 standard will always create the same crypto accounts for example you can have a wallet with a seed phrase and it'll create account one and then if you want another account it'll create account two and then account three account four and so on then if you move that seed phrase to another software say maybe an app on your phone that same seed phrase using the same bip 39 standard will also create the same account One account two account three and account four in the exact same order the benefit of a deterministic wallet is that you can remember one sing Single Seed phrase and you'll have access to all of the associated accounts no matter where you import that seed phrase to an easy way to remember this is that with deterministic wallets your seed phrase determines the first account's information and each next account's information metamask for example is a deterministic wallet in this way a non-deterministic wallet doesn't rely on a seed phrase but instead randomly generates private Keys using cryptographic algorithms this makes saving the Wallet information really difficult instead of saving one Master seed phrase you'll need to save the private keys of each account one example of a non-deterministic wallet is say maybe rolling a dice randomly to select your private key where each role indicates the next letter or number of the key the benefit of a non-deterministic wallet is that if you lose one private key all if your other Associated accounts are also not compromised or lost because they are not connected bip 39 based deterministic wallets use pneumonic or memorable words for the seed phrases because it's easier to remember words like ask post hero then a random string of letters or numbers that's in a private key or even worse binary code there is a predefined list of 248 unique words that can be used in the pneumonic phrase you might be wondering why these specific words well to make sure that there are no spelling errors word mixups or otherwise like there won't be both women and woman on there or there and there otherwise it would be much less memorable and the list would be more prone to errors also fun to know no words in the list have the same first four letters which is a neat trick to identify the word too the most used word list is the English one but users have created nine other languages available now too to make a seed phrase using bip 39 we typically use wallet software that is set up to do this automatically the software generates a random set of numbers called entropy these numbers are then converted to Binary ones and zeros known as bits in computer science finally the last word in a seed phrase is called a check sum which is Al rythmically checked and

performed against the previous words generated and used to check for errors this means you can just come up with the last word of a seed phrase a computer must generate it the check sum is added to the end of the binary string the software then groups these into bits of sets of 11 and each group matches a word from the list and it becomes your pneumonic phrase for example this list of zeros is abandon and with a one is ability all the way to this list of ones which is zoo in this way your seed phrase is actually a bunch of ones in zeros but we group the ones and zeros together and then match each set to a word so that it's easy to write down all these ones and zeros without mistakes imagine having to write down 200 or more digits without a single mistake writing down 12 distinguishable words is much easier safer and less error prone if you put the same nemonic phrase into the shaw 256 algorithm you'll get the same seed out however this is not backwards compatible if you take the seed and try to guess what the pneumonic is you won't get it the process that prevents this is called a hashing and it's kind of like a blender it mixes up things well so that you can't un blend them this keeps your crypto safe so only you can control it let's move on to some security aspects bip 39 has some important security features namely it's deterministic meaning the same seed phrase always generates the same keys in the same order it's also irreversible as it's computationally infeasible to reverse the process and obtain the original entropy or the seed phrase from a private key and lastly it's Collision resistant meaning it's unlikely for different entropy to produce the same seed phrase or different seed phrases to produce the same private keys but in fact if you wanted to guess someone's seed phrase you could it's totally possible but it's not likely this is because each letter in the pneumonic has a possibility of 248 words and there's at least 12 words in the standard phrase in fact if you want to know the math if you generate a 12-word seed phrase the amount of possibilities is 248 to the power of 12 which in standard notation is about 5. 44 * 10 to the power of 39 nowadays some people are using 24w seed phrases which is exponentially even more computationally complex you'll notice how we say that it's unlikely because it is possible to generate the same seed phrase randomly twice the blockchain doesn't keep track of the seed phrases that are used for obvious security reasons so there's no mechanism stopping one wallet from accidentally generating the same seed phrase as another wallet it's really rare and it's more likely that you and I will win the lottery 50 trillion times each one other vulnerability is that in theory a really smart computer could combine every single one of the 248 words in different orders to try to figure out an active seed phrase this is called a Brute Force attack at the moment the type of computing power that we have would take an astronomically long time due to two factors the first is the length of the seed phrase as we said earlier it would take 10 to the power of 39 guesses which is a huge number in computational power the second is the limitation of our Hardware to make these guesses knowing that there are these two vulnerabilities accidentally generating the same seed phrase in a Brute Force attack it's important to keep your pneumonic seed phrase safe the most common vulnerability is user error most attacks involve someone typing in their seed phrase into an online website which you should never do or someone writing down their seed phrase in an area where other people have access to combat this some people take their seed phrase and split it up into multiple different sections where they will hide each section of their seed phrase at a different point one at home maybe one in a safety deposit box maybe one with a trusted family member maybe one buried in a time capsule in the woods the problem with this though is that if you lose one you'll have to guess what was on that list all right to wrap up the process of bip 39 is to randomly generate entropy and then convert that entropy into a pneumonic phrase using the word list and then to derive a seed from the pneumonic phrase using a cryptographic hash function such as Shaw 256 it's not a perfect way to create a secure wallet there really is isn't a perfect way but it is one of the best ways that we have now to keep it safe and be able to back it up in case your computer or your hard wallet breaks and you want to access those phones while biip 39 was originally proposed for Bitcoin wallets it has since been adopted by many other cryptocurrencies and blockchain platforms because of the ease of recovery and security wrapping this video up thank you so much for watching it I hope you enjoyed it I really hope you've learned something and most of all I hope to see you in our next video