When you set up a BitBox02, it generates a “long random number” which is converted into your 24 recovery words (also called mnemonic seed), such string is stored on the BitBox02 and as a wallet back-up on the microSD card. 

Optionally, you can also write down your wallet backup in the form of 24 recovery words.

Subsequently, whenever the BitBox02 is used, it derives a cryptocurrency wallet via a (very simplified) formula.

• Formula: Wallet backup + passphrase => wallet
• If you don’t use a passphrase that is: wallet backup + “” (empty passphrase) => normal wallet.
• If you use a passphrase passphrase that is: wallet backup + passphrase => passphrase protected wallet. 
  

Important characteristics of using a passphrase

• Any passphrase is valid, meaning that you won’t get an error message if you enter a different passphrase. If it is not 100% identical to the one you used when you set up your wallet, you will derive a different, empty wallet. Mistyping the passphrase will generate a completely new & empty wallet. 
• A passphrase is not stored anywhere on the device. It has to be entered each time you want to access a passphrase-protected wallet.
• Passphrases are case-sensitive - Lowercase and uppercase characters are distinguished and count as different.
• If you need to restore your wallet, you will always need your wallet backup and the passphrase you used during the creation of that wallet.
• If you loose or forget your passphrase, you will forever lose access to your coins.