Quote from: CCIEMan on March 25, 2016, 07:26:55 PM

How exactly does Mycelium backup work? You get 12 English words as backup key for your wallet. What is mechanism behind this?

BIP39 is what Mycelium uses to generate the 12 words. See https://github.com/bitcoin/bips/blob/master/bip-0039.mediawiki

Quote from: CCIEMan on March 25, 2016, 07:26:55 PM

Where are private keys kept? How are they secured? How are they retrieved with 12 words?

It uses BIP44 to generate the private keys from the 12 words. See https://github.com/bitcoin/bips/blob/master/bip-0044.mediawiki

You can play about here with BIP39 and BIP44 to see how the words correspond to public and private keys:

https://dcpos.github.io/bip39/

If you put your Mycelium backup words into the first field, you'll see all your Mycelium addresses and private keys in the BIP44 tab when you scroll down. There are risks involved with entering your backup on an online machine, of course. Depending on how safe you want to be you might prefer to make a copy of that web page on a memory stick and play about with it on an offline machine. Or use a different set of words completely.

I put in these 12 words: "ketchup meat mesh gift youth dentist early chef luggage delay old enhance". That is all the information you need to generate addresses:

1LnBZHUP3qBoBCsUBnAxPpHMunqWtA18kD, 1KoDCzwjk6YrosZefW9rh75iGZYLgYmyPT, 1FrJWybjo8epKhvCFbXhAkmUx4WsUNqm4Q, ...

and the corresponding private keys. The sequence of addresses goes on forever and all you need to store are the 12 seed words.