What is a private key vs a seed phrase?

A private key in crypto is a random number that only its owner knows and that signs transactions. The wallet vendor Trezor compares it with banking: "A private key, however, is like the password to your bank account" (Trezor). One difference matters: a bank password can be reset, a private key cannot.

The meaning is the same in Bitcoin and Ethereum. Both use elliptic curve cryptography on the curve secp256k1, and the keys are 256 bits long. An Ethereum private key, as an example, is written as 64 hexadecimal characters. The Ethereum documentation states what a private key is used for in cryptocurrency: "Your private key is what you use to sign transactions, so it grants you custody over the funds associated with your account" (ethereum.org, August 6, 2026).

The private key signs, the public key lets others check the signature. The public key is computed from the private key with the Elliptic Curve Digital Signature Algorithm, and the wallet address is computed from the public key. The path runs one way only: "you cannot derive a private key from public keys", as the Ethereum documentation states. The public key and the address can be shared; the private key must stay secret.

A crypto wallet seed phrase is a sentence of common words that encodes the randomness from which a wallet creates its keys. The definition in BIP-39 is "a group of easy to remember words", and the standard gives the reason: "The sentence could be written on paper or spoken over the telephone."

The standard works in three steps. The wallet draws 128 to 256 bits of randomness and adds a checksum. It splits the bits into groups of 11, and each group picks one word from a list of 2,048. A function called PBKDF2, run 2,048 times, turns the words into a 512-bit seed. An optional passphrase changes the seed, so the same words with a different passphrase open a different wallet. The Ethereum wallet page calls the phrase "the only way you'll be able to recover your wallet" (ethereum.org, February 24, 2026).

One seed phrase creates many private keys through the key tree of BIP-32, the standard for hierarchical deterministic wallets. It describes "a system for deriving a tree of keypairs from a single seed". Knowing a key high in the tree gives all keys below it: "knowing an extended private key allows reconstruction of all descendant private keys and public keys".

The tree also serves auditors. A firm can hand over its extended public keys, which lets an auditor "see all transactions from and to the wallet, in all accounts, but not a single secret key".

A private key controls one address; the recovery phrase controls the whole wallet.

In short, the seed phrase is the source, and the private keys are derived from it, as explained above for BIP-32.

A bank or asset manager that keeps private keys or seed phrases for clients provides custody under MiCA, which applies directly in Germany and Austria. BaFin counts the storage of physical media that hold keys, "z. B. ein USB-Stick oder ein Blatt Papier", as safekeeping (BaFin, January 3, 2025). A seed phrase that a bank keeps on paper for a client can therefore fall under custody. Article 75(3) of MiCA requires a custody policy that minimizes the risk of losing the "means of access", and Article 75(8) makes the custodian liable for their loss when the incident is attributable to it.

DORA adds rules for the keys themselves. Article 7 of Delegated Regulation (EU) 2024/1774 requires financial entities to manage cryptographic keys "through their whole lifecycle", backup included, and to have methods to replace keys that are lost or compromised. BaFin supervises in Germany under the KMAG, the FMA in Austria.

Switzerland is outside the EU, so MiCA and DORA do not apply there. FINMA Guidance 08/2023 ties the protection of client crypto-assets in a custodian's bankruptcy to a clear allocation to each client, for example through an internal register. This page gives no legal advice.

Frankfurt-based DekaBank obtained a crypto custody license from BaFin, under the supervision of the European Central Bank, and launched crypto trading and custody for institutional clients in February 2025 (CoinDesk, February 24, 2025). In custody of this kind, the bank controls the private keys for its clients.