Wallet Recovery

A seed phrase is a human-readable backup of a wallet's cryptographic keys, typically consisting of 12, 18, or 24 words. It is the foundational recovery mechanism for most non-custodial wallets.

• Generated from and can recreate the entire private key hierarchy.
• Must be stored offline and securely, as anyone with the phrase controls the assets.
• Standardized by BIP-39, ensuring compatibility across different wallet software.

Social recovery is a mechanism where a user designates a group of trusted individuals or devices (guardians) who can collectively authorize the reset of a wallet's access credentials.

• Mitigates the risk of a single point of failure (e.g., a lost seed phrase).
• Implemented via smart contracts in wallets like Argent and Safe (formerly Gnosis Safe).
• Requires a predefined threshold of guardians (e.g., 3 out of 5) to sign a recovery transaction.

Multi-Party Computation (MPC) distributes the signing power of a private key across multiple parties or devices. No single entity ever holds the complete key, enhancing security and enabling sophisticated recovery.

• Recovery can involve recombining key shares from a quorum of parties.
• Used by institutional custodians (e.g., Fireblocks, Coinbase Custody) and some consumer wallets.
• Enables policy-based recovery flows without exposing a full seed phrase.

This feature allows the secure transfer or backup of a wallet's private key material from one hardware wallet to another, often using proprietary methods.

• Ledger devices use a Recovery Check service and the 24-word seed phrase.
• Trezor models rely on the standard BIP-39 seed phrase for recovery onto a new device.
• The process is designed to be executed in a trusted, offline environment to prevent key exposure.

Account Abstraction (via ERC-4337) transforms wallets into programmable smart contract accounts, enabling native, on-chain recovery logic.

• Allows for social recovery without migrating assets.
• Can implement transaction limits, spending policies, and time-locked recovery.
• Facilitates gas sponsorship for recovery transactions, removing a key user barrier.

Custodial recovery is the process managed by a service provider (exchange, bank) to restore a user's account access, typically through traditional identity verification (KYC).

• User does not hold private keys; the custodian does.
• Recovery involves customer support, email/SMS verification, and government ID checks.
• Contrasts with non-custodial recovery, where the user bears full responsibility for key management.

A seed phrase is the foundational recovery standard, typically a 12- or 24-word mnemonic sequence generated from a BIP-39 specification. It is the master secret from which all private keys and addresses for a wallet are deterministically derived. The process is:

• Generate a random entropy source.
• Map entropy to a wordlist (e.g., BIP-39 English list).
• Add a checksum for error detection.
• Use the phrase with a key derivation function (like BIP-32) to create a hierarchical wallet. This remains the most widely supported, non-custodial recovery method.

Social recovery is a mechanism where control of a smart contract wallet can be transferred by a predefined group of guardians (e.g., trusted friends, other devices, or institutions). Popularized by projects like Vitalik Buterin and implemented in wallets such as Safe (formerly Gnosis Safe) and Argent, it works by:

• Deploying a smart contract as the primary wallet address.
• Assigning guardians who can collectively sign a recovery transaction.
• Initiating a recovery process after a time-delay to migrate assets to a new signing key. This reduces single points of failure inherent in seed phrases.

MPC-based recovery distributes a private key into multiple shares held by different parties or devices, using cryptographic protocols like Shamir's Secret Sharing (SSS) or Threshold Signature Schemes (TSS). Recovery requires a threshold number of shares (e.g., 2-of-3) to reconstruct the key and sign transactions. Key implementations include:

• Custodial Services: Fireblocks, Copper use MPC for institutional key management.
• Wallet-as-a-Service: Providers like Web3Auth use MPC for non-custodial, user-friendly logins.
• Hardware: Ledger Recover service utilizes MPC to back up a shard of the seed phrase.

For enterprises and regulated entities, recovery is managed through custodial services with strict compliance and operational controls. This involves:

• Policy-based access: Requiring multiple authorized officers to approve recovery.
• Hardware Security Modules (HSMs): Storing keys in certified, tamper-proof hardware.
• Audit trails: Logging all recovery attempts and actions for regulatory compliance.
• Insurance: Custodians like Coinbase Custody or Anchorage often provide insurance against theft or loss, transferring the technical recovery burden to a service-level agreement.

The ERC-4337 standard enables account abstraction, allowing smart contracts to function as user accounts with programmable recovery logic. This creates a standardized framework for advanced recovery features without requiring consensus-layer changes. Recovery mechanisms can be built directly into the account's logic, enabling:

• Modular guardians: Easily add or remove social recovery signers.
• Time-locked recovery: Programmable delays for security.
• Gas sponsorship: Allow a third party to pay for recovery transaction fees. Wallets like Stackup and Biconomy are building infrastructure for ERC-4337 account recovery.

This approach ties wallet access to physical authentication factors, moving beyond knowledge-based secrets (seed phrases). Common implementations include:

• Secure Enclave / TEE: Using device hardware (e.g., Apple Secure Enclave, Android Keystore) to generate and store keys, recoverable via device passcode/biometrics.
• Cross-Device Sync: Encrypted key shards synced via cloud services (e.g., iCloud Keychain) requiring the user's device ecosystem for recovery.
• Hardware Wallet Pairing: Using a primary hardware wallet (e.g., Ledger) to recover or authorize access to a mobile wallet. This improves usability but often introduces reliance on a centralized vendor's infrastructure.

The seed phrase (or recovery phrase) is the master key to a wallet. Its security is paramount.

• Single Point of Failure: Anyone with the 12-24 word mnemonic gains full, irreversible control.
• Physical Security Risks: Phrase written on paper can be lost, damaged, or discovered.
• Digital Storage Risks: Storing it in a text file, email, or cloud service exposes it to malware and hacking.
• Social Engineering: Users can be tricked into revealing their phrase through phishing scams.

Social recovery wallets and custodial services shift trust to third parties.

• Custodial Services: Exchanges or wallet providers hold your keys. You rely on their security and solvency (e.g., exchange hacks, bankruptcy).
• Social Recovery: Relies on guardians (friends, devices). This introduces risks of collusion, coercion, or compromise of guardian accounts.
• Regulatory Seizure Risk: Custodians may be forced by law to freeze or seize assets.

Advanced wallets like Safe (formerly Gnosis Safe) are smart contracts, introducing code-level risks.

• Logic Bugs: Flaws in the wallet's smart contract code can be exploited to drain funds.
• Signature Verification Flaws: Complex multi-signature or session key logic can have vulnerabilities.
• Upgradeability Risks: Admin keys or upgrade mechanisms can be compromised, leading to malicious contract updates.
• Phishing on Signing Requests: Users may be tricked into signing malicious transactions that look legitimate.

Without proper planning, assets become inaccessible upon the holder's death or incapacity.

• Irreversible Loss: Heirs cannot access funds without the seed phrase or private keys.
• Legal Uncertainty: Traditional wills are ill-suited for cryptographic keys, which should not be written in plaintext.
• Secure Secret Sharing: Solutions like Shamir's Secret Sharing or dead man's switches are complex and themselves carry risks if implemented incorrectly.

While hardware wallets (Ledger, Trezor) are the gold standard for cold storage, they are not infallible.

• Supply Chain Attacks: Devices could be tampered with before purchase.
• Firmware Vulnerabilities: Bugs in device firmware have historically been exploited.
• Physical Theft & Duress: A stolen device with a weak PIN can be compromised.
• Seed Phrase Generation: Reliance on the device's true random number generator (TRNG); flaws are catastrophic.

The human element is often the weakest link in wallet security.

• Misplaced Backups: Losing the only copy of a seed phrase.
• Incorrect Transcription: Manually writing words incorrectly renders the backup useless.
• Fake Wallet Software: Downloading malicious clones of legitimate wallet apps that steal keys.
• Network Spoofing: Connecting to a malicious blockchain node (Ethereum RPC) that provides false data.

Social recovery is a mechanism where control of a wallet can be regained through a predefined group of trusted entities (guardians), rather than a single seed phrase. This is a core feature of smart contract wallets.

• Guardians can be other wallets (friends, institutions) or hardware devices.
• If access is lost, a majority of guardians can authorize a wallet recovery to a new address.
• Reduces the single point of failure inherent in seed phrases.

MPC is a cryptographic technique that distributes a private key across multiple parties or devices. No single party holds the complete key, enhancing security. For recovery:

• Key generation and signing are performed collaboratively.
• Threshold schemes (e.g., 2-of-3) allow wallet access if a minimum number of parties agree.
• Recovery often involves generating new key shares with the participating parties, avoiding exposure of the full key.

A private key is a secret 256-bit number that cryptographically proves ownership and authorizes transactions from a blockchain address. In the context of recovery:

• In a non-HD wallet, each address has a unique private key; losing it means permanent loss.
• In an HD Wallet, private keys are derived from the seed phrase, making the seed the ultimate recovery tool.
• Never share a private key. It is equivalent to sharing full control of that specific address.