Written By
Ted Stevenot
Hardware wallets using bitcoin standards generate a seed and a corresponding seed phrase—the cornerstone for constructing a bitcoin wallet. Based on the seed, keys and addresses are generated for receiving bitcoin on the blockchain.
Hardware wallets create seed phrases by mapping the seed to a list of 2,048 words. These should be carefully written down and saved in a secure offline location.
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Once generated during initialization, your bitcoin wallet’s seed is stored inside the hardware wallet. If your hardware wallet uses a secure element, it generally resides there and cannot be exported from the device in plain-text form.
A hardware wallet’s limitations for exposing the seed are part of what makes it secure. Hardware wallets are considered a form of “cold storage” because they store seeds in an environment that is isolated from the internet.
Signing a transaction with a hardware wallet involves a series of steps—beginning with creating an unsigned transaction with wallet software and passing it to the hardware wallet itself to be signed by private keys that are derived from the seed.
At no point during the process does a private key leave the hardware wallet or touch an internet-connected device. Only the transaction data moves between the wallet software and the hardware wallet.
Bitcoin transactions are immutable, which means if you send your bitcoin to the wrong address, it can be permanently lost. Thankfully, hardware wallets also allow you to double-check your bitcoin address on the device.
To confirm the address was built correctly (e.g. 2-of-3 multisig) and avoid the risk of malware (which can manipulate your wallet software to show you an incorrect address), you should always check the receive or change address on your hardware wallet before sending yourself meaningful amounts of bitcoin.
If you set up a bitcoin hardware wallet, backup the seed phrase, and later, something happens to it—fire, theft, flood, malfunction, loss, etc.—the best way to recover your funds is to restore your seed phrase to a new hardware wallet.