A passphrase is a custom word which you add to your seed phrases to make it longer and increases the security of your wallet. Wallets with a passphrase creates a completely different wallet from using just the seed phrases. A person who comes in contact with your seed phrases would never have access to your funds since the private key and addresses are completely different, hence the passphrase acts as an extra layer of security for your wallet and can be used as the 13th word and 25th word for a 12 word and 24 words seed phrases respectively. It would transform your standard 12 or 24 word seed phrase into a new cryptographic key, which would make the original mnemonic a different wallet on its own.
Benefits of using a passphrase- It acts as an extra layer of security to your seed phrases
- Your seed phrase can be compromised without access to your funds since the passphrase combination unlocks a totally different wallet
- Under Wrench attacks, you can hand over the seeds to the attacker which bears an empty wallet while your funds remain safe
- You can use it for asset segmentation: This means to have different wallets with same seed phrases but different passphrase and they would have different key/address pairs since their word extensions are different
- Encourages a better backup as you can write it down in a very different place from your seeds and can memorize the passphrase easily since it is the completion of your mnemonic. It also saves you from backing up several seed phrases for different wallets since you only have to backup the different passphrase and only one seed phrase
The only trade off I know about this is that if you loose your passphrase, you loose access to your funds permanently, even when it is wrongly typed, you recover a completely different wallet.
Creating a wallet with passphrase(with Electrum) While creating a new wallet, select
Standard wallet>Create a new seed, on the window that shows your seeds, click on
Options and Check
Extend this seeds with custom words, then on the next window, you'll be given a field to input your custom words, after it you can move on to retype your seeds as well as the custom words and create the wallet.
Creating more wallets with same seed phrases and different passphrase(with Electrum) Select
Standard wallet>I already have a seed, on the window that you type in your seeds, click on
Options and Check
Extend this seeds with custom words, on the next window, you'll be given a field to input your custom words, after it you can move on to finish and launch a different wallet with same seed phrases. You can create as much new wallets as you want from a single seed phrase.
Note You should re-import the seed phrases + passphrase pair after each creation to ensure you got the correct pairs documented because any mistake can lead to a new wallet all together and loss of funds.
Contributions are always welcome