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If you use the seed, and it gets compromised, then you immediately lost all your coins. But if you only save the password safely, and backup the wallet file in several locations, then you gain a form of multi-factor authentication, because if the password gets compromised - the wallet file is still needed, and vice versa.

The seed may be useful for portability of the wallet, but it's a major security risk compared to just using the password and wallet file.

Am I missing something here?

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Backing up the encrypted wallet file and saving the password elsewhere is basically equivalent to encrypting the seed itself and saving the encrypted seed in a different location to the encryption key. But indeed, that would require both parts to be used so would be more secure than just backing up an unencrypted seed itself

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  • Then shouldn't we stop suggesting people to use the seed for securing their coins? All major wallets tend to suggest using it even though it's significantly less secure compared to the simple encrypted wallet file with a password method. – Pineapple29 Oct 16 '17 at 16:06
  • They do normally suggest backing up the seed in a secure place, and a paper copy of it in a safe place in your house should be pretty secure even if it's not encrypted – MeshCollider Oct 16 '17 at 19:29
  • If the cleaning lady stumbles upon this safe place then the wallet is gone.. Think 5-10 years from now when people will be actively looking for those 12 words everywhere they look. It will become common knowledge that if you see a piece of paper with 12 random words on it, you found gold. We should go back to the method of 2 step authentication that exists when encrypting and backing up the wallet file. Just need to create a strong password that can't be brute forced. – Pineapple29 Oct 16 '17 at 19:34

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