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Understanding Your Bitcoin Keys: Bip39 Seed Words

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The bedrock of Bitcoin self-sovereignty is having control over your private keys. Without this, in one way or another, you are relinquishing control of your money to someone else. “Not your keys, not your coins” as the saying goes. A counter-intuitive aspect of Bitcoin for people who aren’t familiar with the technical underpinnings of it is “where” your Bitcoin actually is. When people think of a wallet, they think “the place where I keep my money.” Your bitcoin wallet doesn’t actually “hold” your Bitcoin, it just stores your private keys. Your Bitcoin is just entries of data on the blockchain hosted by everyone participating in the network. When you go to spend your bitcoin, what you are actually doing is proposing an update to the data stored on the blockchain. A private key is how the protocol ensures that you, and you alone, can authorize an update to the blockchain that spends your Bitcoin.

So what are your private keys? Just very large numbers. Extremely large. This is a private key in binary:

1110001011011001011110111100000101000100000010001001111010111011010101110111001111111111101010111010010111010011101001110010100110111101000110000111110101111001101001011110011011101000001101101101110001101000110001111010001001001111011010101011001101101010

256 random 1s and 0s. This random number is what ultimately secures your Bitcoin. It might not look like much, but its randomness is what ensures your wallet’s security. There are almost as many possible Bitcoin private keys as there are atoms in the visible universe. That is how many numbers a computer would have to count through to generate and catalog all the private keys potentially possible. As long as the process used to generate the keys is truly random, your keys are safe.

This is what a private key looks like in hexadecimal (binary uses two digits to encode a number, 1 and 0, hexadecimal uses 16 digits, 0-9 and A-F):

E2D97BC144089EBB5773FFABA5D3A729BD187D79A5E6E836DC68C7A24F6AB36A

This is what a private key looks like in uncompressed Wallet Import Format (WIF):

5KYC9aMMSDWGJciYRtwY3mNpeTn91BLagdjzJ4k4RQmdhQvE98G

WIF format is how everyone used to interact with their private keys in the early days of Bitcoin. In this era, you could generate one private key at a time, and then you’d generate the public key from that. The process of generating a public key is essentially just the multiplication of very large numbers but there is a bit more to it than that.. All public keys are an x and y point on a graph showing a very, very large curve that loops back on itself.

On the graph curve, in Bitcoin’s case Secp256k1, there is a point called the “generator point.” This generator point can be thought of as the “base point” on the Secp256k1 curve. It is integral to the process of generating keys and signing with them. This is what the generator point is for Bitcoin’s curve:

G = 02 79BE667E F9DCBBAC 55A06295 CE870B07 029BFCDB 2DCE28D9 59F2815B 16F81798

To generate the public key from your private key, you take the private key you generated and multiply it by the generator point. That’s it. This now establishes a point on the graph with a mathematical relationship to the private key you generated that only you know.

This is an uncompressed public key showing both x and y points:

04C0E410A572C880D1A2106AFE1C6EA2F67830ABCC8BBDF24729F7BF3AFEA06158F0C04D7335D051A92442330A50B8C37CE0EC5AFC4FFEAB41732DA5108261FFED

It is very common to “compress” public keys in the rare chance you interact with them to just store the x coordinate with a byte to tell you whether the y coordinate is negative or positive. That shortens it considerably:

04C0E410A572C880D1A2106AFE1C6EA2F67830ABCC8BBDF24729F7BF3AFEA06158F0C04D7335D051A92442330A50B8C37CE0EC5AFC4FFEAB41732DA5108261FFED

When you go to sign a transaction with your private key, it once again boils down to essentially just multiplication. By generating a random number (the nonce), and using that and your private key to essentially multiply the hash of the transaction you are signing, you produce the signature (which is made up of two values, r, and S). This allows someone to run an algorithm to verify the message was signed by the appropriate private key without revealing that key. The thing guaranteeing only you can authorize spending your Bitcoin is essentially just the multiplication of very, very large numbers.

If you aren’t all that familiar with these concepts before reading this, all of this probably seems somewhat intimidating. Binary? Hexadecimal? Graph points? How do you back up a WIF?

Since the development of more intuitive ways of handling this data, most users are unfamiliar with these complicated formats. Most likely, you have more experience with word seeds, also known as seed phrases.

BIP 39 Mnemonic Seeds

Mnemonic seeds, or seed phrases, were created to address the problem of the experience of interacting with your private keys.

As we discussed earlier, private keys are ultimately just a long series of 1s and 0s that are randomly generated. Imagine trying to create copies of this and ensure you didn’t make an error transcribing it:

1110001011011001011110111100000101000100000010001001111010111011010101110111001111111111101010111010010111010011101001110010100110111101000110000111110101111001101001011110011011101000001101101101110001101000110001111010001001001111011010101011001101101010

All it would take is a single error copying one digit to render a backup of your keys useless. This is where mnemonic seeds come in handy. 256 consecutive 1s and 0s in a row is not a human-friendly way to interact with sensitive information. Recording this number incorrectly means losing access to your account.

truck renew fury donkey remind laptop reform detail split grief because fat

That is much easier to deal with, isn’t it? Just 12 words. So how does that work, going from a bunch of random 1s and 0s to a string of words that actually make sense to you? An encoding scheme, just like binary or hexadecimal!

Each of those 12 words in that mnemonic seed above is a binary number in an encoding scheme mapping specific strings of 1s and 0s to words. If we look back at the WIF private key example earlier, that was simply a number encoded in a specific encoding scheme, in that case, base 58, which uses every number and letter of the alphabet except 0 and 1, and O and l (case sensitive). The exclusion of those characters was done specifically to make transcription errors unlikely by confusing a 1 for an l, or a 0 for an O. bech32 and bech32m used by Segwit and Taproot take this to the next level by using only this set of characters (qpzry9x8gf2tvdw0s3jn54khce6mua7l).

Bitcoin Improvement Proposal 39 (BIP 39), introduced a standardized encoding scheme where each word in a specially crafted dictionary is alphabetically mapped to a binary number from 00000000001 to 11111111111. The demonstration seed above maps to this:

truck: 11101001001

renew: 10110110001

fury: 01011110011

donkey: 01000001001

remind: 10110101110

laptop: 01111101000

reform: 10110100010

detail: 00111100010

split: 11010010001

grief: 01100110100

because: 00010011110

fat: 01010011011

In just binary it looks like this:

11101001001 10110110001 01011110011 01000001001 10110101110 01111101000 10110100010 00111100010 11010010001 01100110100 00010011110 0101001 1011

There are 2048 words, each mapped to a specific 11 digit string of 1s and 0s, specifically to make it easier for people to interact with their private keys. When you generate a random number for your private key, your wallet cuts that number up into chunks of 11 digit binary numbers and maps them to the BIP 39 Mnemonic dictionary. It’s still the same large number, but now you can read it as English words. Since your brain is much more accustomed to this format than long strings of 1s and 0s, this drastically reduces the odds of you writing down something wrong and losing your Bitcoin in the process.

You may have noticed that in the raw binary encoding of the word seed above, there are four digits (1011) sitting off on their own, and the last “word” is only actually 8 digits. That is a checksum to ensure that a seed phrase is valid. When you generate your random number, there aren’t enough digits to map it exactly to 12 (or 24) words. The wallet hashes those existing digits you generated and takes the first few digits of the hash to add on to the end of your random number. This gives you enough digits to map to the last word.

This last word allows you to perform a safety check on copies of your seed. If you enter your mnemonic seed into a wallet incorrectly, the checksum will not match. Each 12 or 24 word seed has multiple potential valid checksum words, but if the last word doesn’t match the checksum of a correct seed your wallet will warn you it is invalid. This gives people an intuitive yet still mathematical way to guarantee their backups are correct, unlike the messy process of transcribing and backing up the raw binary numbers.

The selection of the specific words on the list even went so far as to guarantee that none of the 2048 words have the same first four letters. This was done to reduce the likelihood of people making transcription errors by confusing similar words and winding up with an incorrect backup of their private keys.

Translating these words into a set of multiple private/public keys is quite simple. Your mnemonic seed is taken and hashed using SHA512, which outputs a hash of 512 individual 1s and 0s. Half of that output is used as an actual private key, and the other half is used as input to SHA512 with an index number and the existing private or public key to generate a new key pair. You can do this as many times as you want to generate new private/public keys that can all be recovered from your single mnemonic phrase.

This ensures that you can manage your private keys as easily, and safely, as possible with the lowest odds of making a mistake that loses your money. And all of it was done using math! Hopefully, now you have a good understanding of why people say that Bitcoin is money ‘secured by math.’

​ How large numbers and randomness secure your bitcoin, and what your seed phrase has to do with it. The first installment of “10 Steps to Self-Sovereignty” powered by Ledger. 

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El Salvador Is Still Bitcoin Country

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Follow Frank on X.

El Salvador is still Bitcoin country, despite the fact that bitcoin is no longer legal tender in the country — at least from where I’m sitting.

Let’s start with some background on the matter.

On January 29, 2025, the Legislative Assembly in El Salvador voted to remove bitcoin’s status as legal tender.

This means that businesses in the country no longer have to accept bitcoin (not that this rule was ever strictly enforced while bitcoin was classified as legal currency, as far as I know; however, I have been told that big businesses that operate in the country (e.g., McDonalds, Walmart) may stop accepting bitcoin as payment now, which could have a detrimental effect on adoption).

This change occurred approximately one month after the International Monetary Fund (IMF) struck a deal with authorities in El Salvador that stipulated the following:

  • El Salvador would receive a $1.4 billion loan to support the government’s “reform agenda”
  • Bitcoin-related risks be mitigated; bitcoin acceptance in the private sector must be voluntary, while the public sector’s participation in Bitcoin-related activities would be “confined” (bitcoin can no longer be used to settle government debts or pay taxes)
  • Operations for the government-created Bitcoin wallet, Chivo, would be “unwound”

While the news of the Salvadoran government’s reversing its policy on bitcoin as legal tender as a result of influence from the IMF feels like a gut punch even to me, someone who isn’t Salvadoran and doesn’t live in the country, I can’t help but believe that El Salvador is still Bitcoin country.

And this feeling has only grown stronger based on what I’ve seen Bitcoiners in El Salvador posting on X.

Evelyn Lemus, co-founder and Director of Education at Bitcoin Berlin, a Bitcoin circular economy within the country, doesn’t plan to stop teaching everyday Salvadorans about Bitcoin.

The team at Bit Driver don’t plan to change their business model — accepting bitcoin as taxi fare — any time soon.

While John Dennehy, founder of Mi Primer Bitcoin, expressed concern about the government of El Salvador’s rolling back its policy on bitcoin as legal currency, he and the ever-growing team at Mi Primer Bitcoin plan to double down on the work they’re doing.

The legendary Max and Stacy haven’t publicly voiced any plans to give up on El Salvador anytime soon.

And El Salvador’s Bitcoin Office, run by Stacy, is still stacking bitcoin and helping to run Bitcoin education programs in the country.

The lesson here is that while the law around Bitcoin may have changed in El Salvador, the Bitcoiners on the ground in the country have hardly flinched.

Because we are Bitcoin, what matters most is that everyday Salvadorans and everyone else involved in the Bitcoin movement in El Salvador continues to push forward with the Bitcoin mission.

The IMF may have landed a blow, but Bitcoiners in El Salvador remain steadfast in their efforts to foster broader Bitcoin adoption.

El Salvador is still Bitcoin country.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

 Bitcoin may no longer be legal tender in El Salvador, but Bitcoiners in the country haven’t given up on the mission. 

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Introducing the Bitcoin Everything Indicator

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Wouldn’t it be great if we had one all-encompassing metric to guide our Bitcoin investing decisions? That’s precisely what has been created, the Bitcoin Everything Indicator. Recently added to Bitcoin Magazine Pro, this indicator aims to consolidate multiple metrics into a single framework, making Bitcoin analysis and investment decision-making more streamlined.

For a more in-depth look into this topic, check out a recent YouTube video here: The Official Bitcoin EVERYTHING Indicator

Why We Need a Comprehensive Indicator

Investors and analysts typically rely on various metrics, such as on-chain data, technical analysis, and derivative charts. However, focusing too much on one aspect can lead to an incomplete understanding of Bitcoin’s price movements. The Bitcoin Everything Indicator attempts to solve this by integrating key components into one clear metric.

Figure 1: The new Bitcoin Everything Indicator.

View Live Chart 🔍

The Core Components of the Bitcoin Everything Indicator

Bitcoin’s price action is deeply influenced by global liquidity cycles, making macroeconomic conditions a fundamental pillar of this indicator. The correlation between Bitcoin and broader financial markets, especially in terms of Global M2 money supply, is clear. When liquidity expands, Bitcoin typically appreciates.

Figure 2: Global Liquidity cycles have had a major influence on BTC price action.

View Live Chart 🔍

Fundamental factors like Bitcoin’s halving cycles and miner strength play an essential role in its valuation. While halvings decrease new Bitcoin supply, their impact on price appreciation has diminished as over 94% of Bitcoin’s total supply is already in circulation. However, miner profitability remains crucial. The Puell Multiple, which measures miner revenue relative to historical averages, provides insights into market cycles. Historically, when miner profitability is strong, Bitcoin tends to be in a favorable position.

Figure 3: BTC miner profitability has been an accurate gauge of network health.

View Live Chart 🔍

On-chain indicators help assess Bitcoin’s supply and demand dynamics. The MVRV Z-Score, for example, compares Bitcoin’s market cap to its realized cap (average purchase price of all coins). This metric identifies accumulation and distribution zones, highlighting when Bitcoin is overvalued or undervalued.

Figure 4: The MVRV Z-Score has historically been one of the most accurate cycle metrics.

View Live Chart 🔍

Another critical on-chain metric is the Spent Output Profit Ratio (SOPR), which examines the profitability of coins being spent. When Bitcoin holders realize massive profits, it often signals a market peak, whereas high losses indicate a market bottom.

Figure 5: SOPR gives insight into real-time realized investor profits and losses.

View Live Chart 🔍

The Bitcoin Crosby Ratio is a technical metric that assesses Bitcoin’s overextended or discounted conditions purely based on price action. This ensures that market sentiment and momentum are also accounted for in the Bitcoin Everything Indicator.

Figure 6: The Crosby Ratio has technically identified peaks and bottoms for BTC.

View Live Chart 🔍

Network usage can offer vital clues about Bitcoin’s strength. The Active Address Sentiment Indicator measures the percentage change in active addresses over 28 days. A rise in active addresses generally confirms a bullish trend, while stagnation or decline may signal price weakness.

Figure 7: AASI monitors underlying network utilization.

View Live Chart 🔍

How the Bitcoin Everything Indicator Works

By blending these various metrics, the Bitcoin Everything Indicator ensures that no single factor is given undue weight. Unlike models that rely too heavily on specific signals, such as the MVRV Z-Score or the Pi Cycle Top, this indicator distributes influence equally across multiple categories. This prevents overfitting and allows the model to adapt to changing market conditions.

Figure 8: The most influential factors impacting the price of bitcoin.

Historical Performance vs. Buy-and-Hold Strategy

One of the most striking findings is that the Bitcoin Everything Indicator has outperformed a simple buy-and-hold strategy since Bitcoin was valued at under $6. Using a strategy of accumulating Bitcoin during oversold conditions and gradually selling in overbought zones, investors using this model would have significantly increased their portfolio’s performance with lower drawdowns.

Figure 9: Investing using this metric has outperformed buy & hold since 2011.

For instance, this model maintains a 20% drawdown compared to the 60-90% declines typically seen in Bitcoin’s history. This suggests that a well-balanced, data-driven approach can help investors make more informed decisions with reduced downside risk.

Conclusion

The Bitcoin Everything Indicator simplifies investing by merging the most critical aspects influencing Bitcoin’s price action into a single metric. It has historically outperformed buy-and-hold strategies while mitigating risk, making it a valuable tool for both retail and institutional investors.

For more detailed Bitcoin analysis and to access advanced features like live charts, personalized indicator alerts, and in-depth industry reports, check out Bitcoin Magazine Pro.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.

 A Single Metric to Rule Them All – The Bitcoin Everything Indicator combines multiple key metrics into one comprehensive tool for better investment decisions. 

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Here’s The Secret To Investing In Bitcoin

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Follow Frank on X.

Over the course of the last week, we’ve seen reports of massive bitcoin liquidations.

For those unfamiliar with the term “liquidation” as it applies to finance, it refers to when a trader is forced to close a leveraged trade because the margin for the trade has been depleted.

In everyday pleb terms, it’s when someone borrows money to bet on the direction of the price of bitcoin and they get it wrong, resulting in their losing the money they put up for the trade (or more, in some cases).

When it comes to trading bitcoin with leverage, I keep in mind the first line from the post below:

So, lesson number one in investing in bitcoin is don’t do so with leverage. (Not financial advice.)

Even now that bitcoin has about a $2 trillion market cap, it’s still a highly volatile asset. Its price fluctuates notably in response to news. Because of this, it’s much safer to just buy some bitcoin on the spot market and hold it for the long run (at least four years).

What is more, when and if you choose to buy some bitcoin in the spot market, consider remaining underexposed to bitcoin instead of overexposed to it (those terms are subjective; interpret them as you will).

When you’re overexposed to bitcoin, or if you’re new to the market and you’ve gone all in on bitcoin, it’s more likely that you’ll panic sell if its price tanks in the short term.

How will you know if you’re overexposed? You’ll likely begin losing sleep over it and/or being investing emotional energy in hoping that bitcoin’s price moves in a certain direction (up only).

I share this based on experience. I was overexposed to bitcoin in 2021-2022, and I often felt sick because of it. Once I lessened my exposure, I felt better and was able to think more clearly.

Find an investment threshold with which you’re comfortable, and, again, plan to hold for the long haul.

Aiming to get rich quick with bitcoin is nearly a sure fire recipe for getting yourself rekt.

Take it slow, and heed the very wise advice of legendary Bitcoiner Matt Odell: stay humble, stack sats.

(The inverse of such sage advice would be: be irrational, bet on bitcoin irresponsibly.)

Be careful out there.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

 Don’t use leverage, and don’t overexpose yourself to it. 

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