What Is a Seed Phrase? A Complete Guide to Crypto Wallet Security

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

This guide explains what a seed phrase is, how it is generated, and how to store one safely. It also covers an important structural difference: trading crypto CFDs (Contracts for Difference) with a regulated provider does not require a seed phrase or a wallet at all, since you never take ownership of the underlying coin.

This article is for information and education only and does not constitute financial advice.

What is a seed phrase?

A seed phrase is a sequence of 12 or 24 words, generated once when you create a self custody crypto wallet, that can recreate every private key inside it.

Most wallets follow BIP39 (Bitcoin Improvement Proposal 39), a technical standard that defines how seed phrases work across different wallet brands. BIP39 draws from a fixed list of 2,048 English words, includes a built in checksum that catches most typing errors, and is deterministic, meaning the same seed phrase will always regenerate the same wallet addresses. This is why the same phrase can restore your wallet on a completely different device or app, as explained in IG's guide to cryptocurrency trading.

The word 'self custody' describes a wallet where you, rather than an exchange or broker, hold the keys and are solely responsible for keeping them safe. A custodial account, such as a balance held on an exchange, works differently: the platform holds the keys on your behalf and you log in with a username and password instead.

Seed phrase vs private key vs wallet password

A seed phrase, a private key and a wallet password are often confused, but only the seed phrase can fully restore a wallet from scratch.

Why does losing a seed phrase mean losing your crypto?

In a self custody wallet, the seed phrase is the only proof of ownership, so there is no company or customer service line that can reset it for you.

Cryptoasset ownership is enforced by the blockchain itself rather than by a central administrator. Whoever can produce the correct seed phrase or private key controls the funds at that address, and a transaction, once confirmed, cannot be reversed. There is no 'forgot password' option, because there is no central account to reset.

How to store a seed phrase safely

A seed phrase should be stored offline, in more than one secure location, and never shared with anyone.

• Paper: low cost and simple, but vulnerable to fire, water damage and physical discovery if not hidden securely.
• Metal plates or capsules: more resistant to fire and water than paper, though typically the more expensive option and still discoverable if not stored securely.
• Hardware wallets: keep signing keys offline, but you should still record the original seed phrase separately in case the device is lost, damaged or stolen.
• Splitting a phrase across multiple secure locations: reduces the risk of a single point of failure, but adds complexity and the risk of losing a fragment.

A seed phrase should never be stored in a photo, cloud note, email or messaging app. Digital storage of this kind exposes the phrase to malware, account hacks and data breaches, any one of which can result in a total and permanent loss of funds.

Seed phrase theft is also a common target for scammers. Cryptocurrency was linked to 66% of investment fraud reports made to Action Fraud in 2024, and total UK investment scam losses reached £221.5 million in 2025, a 40% increase on the previous year, according to UK Finance's Annual Fraud Report (2026). Globally, the FBI's Internet Crime Complaint Center recorded $11.4 billion in crypto related fraud losses in 2025. A common tactic is a message or call from someone posing as wallet or exchange support, asking the holder to 'verify' their seed phrase. No legitimate wallet provider, exchange or IG will ever ask you to share your seed phrase.

What happens if your seed phrase is exposed or stolen?

If someone else gains access to your seed phrase, they can move your funds immediately, and the transaction cannot be reversed once it is confirmed on the blockchain.

• Move any remaining funds to a new wallet with a freshly generated seed phrase as soon as possible.
• Treat any unsolicited offer of 'recovery services' with caution. Fraudsters sometimes target people who have already lost funds with a second scam.
• Do not reuse any part of the exposed phrase when generating a new wallet.

Do you need a seed phrase to trade crypto CFDs?

No. Trading a crypto CFD (Contract for Difference) means speculating on the price movement of a cryptoasset without owning the underlying coin, so there is no wallet or seed phrase to create, store or protect.

CFDs are leveraged products, so losses can exceed your initial deposit.

Self custody and CFD trading serve different purposes. Self custody, covered in IG's guide to crypto investing, is about holding and controlling the underlying asset yourself. Trading crypto CFDs is a way to gain price exposure through a regulated provider without managing private keys, at the cost of not owning the underlying asset and taking on leverage risk. You can read more in IG's guide to how to trade bitcoin.

Summed up

• A seed phrase is a 12 or 24 word master key generated once when you set up a self custody wallet.
• Anyone with your seed phrase can access your funds, and losing it usually means losing them permanently.
• Store it offline, in more than one secure place, and never as a photo, note or cloud file.
• No legitimate provider will ever ask you to share your seed phrase.
• Trading crypto CFDs does not require a wallet or seed phrase, though CFDs carry their own leverage risk.

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