How Private Keys and Seed Phrases Work to Keep Your Crypto Safe
With over $2 billion stolen from crypto platforms in just the first seven months of 2025, securing your digital assets has never been more critical. Especially since losing access to your crypto wallet isn't like forgetting a password. There's no reset button, no customer service hotline, and no way to recover your funds without the right information.
If you own cryptocurrency, you need to understand two critical security tools: private keys and seed phrases. These aren't just technical jargon—they're the only things standing between you and permanent loss of your digital assets.
So what exactly are these tools, and how do they work?
What Are Private Keys and Seed Phrases?
To truly own your crypto, you need to understand the tools that grant you control. The two most important concepts are the private key and the seed phrase.
A private key is a long, complex cryptographic code, represented as a 64-digit string of letters and numbers. It gives you direct access to a specific cryptocurrency address on the blockchain.
Think of it as a single, physical key that unlocks a specific safe deposit box. This key is what you use to sign and authorise transactions, proving you have the right to spend the funds from that address. Each non-custodial crypto wallet you have is controlled by its own unique private key.
A seed phrase (also known as a recovery phrase) is a much more user-friendly list of 12 to 24 simple words that is generated by your wallet when you first set it up. Instead of a single key, think of the seed phrase as a master key.
Its main purpose is to serve as a backup for your entire wallet. If you lose your phone or your hardware wallet breaks, you can enter this sequence of words into a new wallet to recover access to all your accounts and funds.
The relationship is straightforward: your seed phrase is used to mathematically derive all the individual private keys within your wallet. It's a one-way street—you can always restore your private keys if you have the seed phrase, but you can't get your seed phrase back from just one private key.
Why You Must Keep Your Private Keys and Seed Phrases Secure
In the world of self-custody crypto, there is no "forgot password" button or a bank you can call to reverse a transaction. The possession of your private key or seed phrase grants absolute and total control over the associated funds. Anyone who gets access to your seed phrase can import your entire wallet onto their own device and drain every asset you own.
Because blockchain transactions are irreversible, any funds stolen in this way are permanently and irretrievably lost. This is the core principle behind the famous crypto saying, "not your keys, not your crypto." If you don't have sole, private control of these keys, you don't truly own your digital assets.
Common Risks of Loss or Theft
Your keys are vulnerable to both digital and physical threats, and most losses occur due to human error. Understanding these risks is the first step toward protecting yourself:
Storing your seed phrase digitally as a screenshot, photo, or in a cloud service
Falling for phishing scams that trick you into entering your phrase on a fake website
Losing the single physical paper copy where your seed phrase is written down
Physical damage to your backup from events like a fire or flood
Your computer or phone is being infected with malware or keylogging software
Accidentally sharing your seed phrase with someone posing as a support agent
Physical theft of your device or written-down recovery phrase
How to Backup and Store Your Keys Safely
Following industry-wide best practices is the most effective way to protect your digital assets for the long term. These steps are simple but non-negotiable for anyone serious about security:
Write down your seed phrase on paper or a more durable material like steel.
Store your physical backup in a secure, private, and offline location, like a fireproof safe or a bank deposit box.
Create more than one backup and store them in separate, secure geographic locations to protect against disaster.
Never, under any circumstances, store your seed phrase digitally—no screenshots, no text files, and no cloud storage.
Do not share your seed phrase with anyone, ever. Legitimate support teams will never ask for it.
Double-check that you have written down the words correctly and in the right order.
For significant holdings, use a hardware wallet (cold storage) to keep your private keys completely offline.
Be aware of your surroundings; don't let anyone see your phrase when you are writing it down or using it for recovery.
Protecting Your Crypto
Understanding and protecting your private keys and seed phrase is the most critical responsibility of any crypto owner. Self-custody grants you the ultimate freedom and control over your finances, but this freedom requires careful management of your "master keys."
While VALR recommends storing large amounts of digital assets in self-custody cold storage wallets for maximum security, VALR's safe and regulated crypto exchange itself is built with advanced security features to protect the crypto. These features include two-factor authentication (2FA), strict internal controls requiring multiple signatories for any fund movement, and keeping the majority of assets in institutional-grade, multi-signature cold storage.
Ready to get started on a secure and regulated platform? Create an account on VALR now!
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate. VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.