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I installed electrum created my fist wallet and notice that instead of having to save a wallet.dat file, If I am right I just need to save/write 12 seed words.

If I understand properly the seeds used to create the wallet, will always produce the same output, but how does the recover process works in order to restore/recover the wallet balance?

Is the blockchain checked against my wallet keys to claim ownership of the transactions that where signed with my keys in order to recover the possible founds?

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From the seed, Electrum generates data which it then uses to generate as many private keys as are desired. From every private key, a public key is generated, and from every public key a hash of that public key, and from every public key hash an address.

Electrum then checks those addresses for activity on the server it's connected to as I described in this and this answer (read them for details).

  • Can I backup the wallet file in the wallets directory rather than the seed phrases to recover the funds? Is there any info thats stored out side the wallet file that I need the seed either way? – Jikku Jose Mar 17 '17 at 6:49
  • No such info is stored outside the wallet files. However, you might still want to back up your seeds anyway because it makes accessing the wallets easier, e.g. if you want to accees your wallets on a phone because you don't have access to a desktop computer or laptop. It also makes accessing your wallets possible with a different HD wallet should Electrum die. – UTF-8 Mar 17 '17 at 9:18
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The seeds produce the addresses, not the balances. Consider that you can have multiple wallets that contain the same address. The balance doesn't exist in both addresses, because there's two copies ... it's like you said at the end.

Your wallet looks up the addresses in the blockchain that's copied on your system, and they contain the balance ... well, actually, the balance isn't actually an entity. The transactions are. Your wallet scans the blockchain for your addresses, and any transactions that involved it, and calculates the balance based on the inputs and outputs.

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