Of Secrets and Seedphrases: Conceptual Misunderstandings and Security Challenges for Seed Phrase Management among Cryptocurrency Users

Cryptocurrency adoption has surged dramatically, with over 500 million global users. Despite the appeal of self-custodial wallets, which grant users control over their assets, these users often struggle with the complexities of securing seed phrases, leading to substantial financial losses. This paper investigates the behaviors, challenges, and security practices of cryptocurrency users regarding seed phrase management. We conducted a mixed-methods study comprising semi-structured interviews with 20 participants and a comprehensive survey of 643 respondents. Our findings reveal significant gaps in users’ understanding and practices around seed phrase security and the circumstances under which users share their seed phrases. We also explore users’ mental models of shared accounts and strategies for handling cryptocurrency assets in the event of death. We found that the majority of our participants harbored significant misconceptions about seed phrases that could expose them to significant security risks — e.g., only 43% could correctly identify an image of a seed phrase, many believed they could reset their seed phrase if they lost them. Moreover, only a minority have engaged in any estate planning for their crypto assets. By identifying these challenges and behaviors, we provide actionable insights for the design of more secure and user-friendly cryptocurrency wallets, ultimately aiming to enhance user confidence in managing their crypto assets reduce their exposure to scams and accidental loss of assets, and simplify the creation of bequeathment plans.