Here is what happens: 1. Generate the Seed Phrase: • The wallet software generates a random 128-bit number (entropy). • This entropy is passed through a hash function (SHA-256) to produce a checksum. • The original entropy and a portion of the checksum are combined to create a 132-bit number. • This 132-bit number is split into 12 groups of 11 bits each. • Each group of 11 bits is mapped to a word from the BIP-39 word list, resulting in a 12-word seed phrase. 2. Convert Seed Phrase to Seed: • The 12-word seed phrase is converted into a binary seed using a key stretching function called PBKDF2 (Password-Based Key Derivation Function 2). • The 12-word seed phrase is used as the input password for PBKDF2, and “mnemonic” is used as the salt. • The PBKDF2 function runs 2048 iterations of HMAC-SHA512, producing a 512-bit seed. 3. Add the Passphrase: • The passphrase (if provided) is concatenated with the 12-word seed phrase to form a new “mnemonic + passphrase” string. • This combined string is again fed into the PBKDF2 function, with the same salt (“mnemonic”). • PBKDF2 runs another 2048 iterations of HMAC-SHA512, generating a new 512-bit seed. 4. Derive the Master Key: • The 512-bit seed is used as the input to HMAC-SHA512, generating a master private key and a master chain code. • These are used to create a hierarchical deterministic (HD) wallet structure, according to BIP-32. 5. Generate Child Keys: • From the master private key and master chain code, child private keys and chain codes are derived for different account levels (e.g., account 0, account 1). • Each private key corresponds to a Bitcoin address. By adding a passphrase, you’re effectively creating an entirely different seed, which results in a completely different set of keys and addresses. This additional layer of security is sometimes referred to as a “13th word” or a “seed extension.” In short; 1. Generate entropy (random 128-bit number). 2. Convert entropy to a mnemonic seed phrase using the BIP-39 standard. 3. Use PBKDF2 with the mnemonic seed phrase and passphrase to create a 512-bit seed. 4. Derive master private key and chain code using HMAC-SHA512. 5. Generate child keys and addresses using BIP-32. 🎯🙌🫡