One of the biggest advantages of cryptos’ decentralization is that you get to be your own bank. As a consequence, you take full responsibility for the safety of your assets.
Losing the private keys is a nightmare for any investor. There are stories when millions of dollars worth of Bitcoin got thrown away just by mistake and were gone forever. Fortunately, there is an easy way to avoid losses: backups.
In this article, we are going to teach you to backup hardware and software wallets and share a few tips that will ensure the undeniable safety of your crypto savings.
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Choosing a Wallet is a Barter Between Security and Convenience
There are two types of wallets: software and hardware. Software wallet is like a computer program that stores you crypto. An exchange wallet, a mobile wallet and a desktop wallet — these are all examples of software storage solutions. Hardware wallets on the other hand are physical devices. Think USB drives for cryptocurrency.
The most convenient method is to store your crypto on the exchange (a.k.a. web wallet), but it is also the least secure. If hackers get access to the exchange — which happens periodically — you will lose your crypto savings forever.
A dedicated software wallet is a compromise. It stores the keys to your crypto on the PC or smartphone, but there is still a risk that the device gets hacked or lost and your crypto stolen.
A hardware wallet is the most safeguard but at the same time least practical option. It stores your crypto offline, which practically cuts of any ways to hack it. On the downside, you need to plug in the device every time you want to make a transaction. A bit bothersome to say the least, especially if you transact frequently. What’s more, as any physical item, the hardware wallet can be lost, damaged, or stolen.
A good strategy is to store a little “operational” portion of your crypto on the exchange for trading and move the majority of your funds to a software or a hardware wallet.
Backing up a Software Wallet
There are 3 main options to backup your software wallet.
1. Seed Phrase
Most software wallets support this recovery option. A wallet generates a random phrase that you write down. If you lose access to your wallet you will be able to recover it using the seed phrase. Just remember to keep it somewhere safe.
Software wallets usually do not allow users to “recover password” and that’s where the seed phrase comes in use.
A seed phrase can look a little something like this:
witch collapse practice feed shame open despair creek road again ice
2. Digital Copy
Every software wallet has an option to export your keys by generating a text file that contains all your private and public keys.
Hint: Disconnect your PC from the internet before exporting the keys.
Remember that anyone who has access to this file has access to all your crypto. As soon as you have created a backup file you should encrypt it. Most of the operating systems have the built-in encryption feature, but you can also download the encryption software for a higher level of security.
After you encrypted the file move it somewhere secure, and delete the contents of the file from the PC.
Hint: Also delete the file in the Recycle Bin. Hackers always check it.
3. Paper copy.
A paper copy is similar to a digital copy, but it is stored offline on a piece of paper. Obviously, paper can’t be hacked, so your biggest threats now are children, pets, and fire. Export your keys from the software wallet, write them down, or simply print them out. Put the created document in the envelope and store it somewhere safe, like a safe or a deposit box in the bank.
Hint: If you choose the deposit box option it is better to cover the paper with the aluminum foil before putting it into the envelope. It may seem excessive, but you can’t be too careful when it comes to protecting your assets. And, if you chose to print the keys out make sure to delete the original file from your PC.
Backing up a Hardware wallet
Hardware wallet or so-called “cold storage” option is the safest way of keeping your keys. It is used in combination with the software wallet.
Your private keys are stored on the hardware wallet and the device serves as a physical key you plug into the PC, while the software wallet serves as a control center for your trading. In this case, you store the most of your crypto funds offline and move little bits to the software wallet only when you need them.
A hardware wallet is the safest solution, but it can be stolen, damaged, or lost, therefore it also requires a backup.
The easiest option to backup the hardware wallet is by using a mnemonic phrase. It is similar to a seed phrase for the software wallet, but longer, usually containing 24. A mnemonic phrase allows you to restore full access to your keys even if you lose the device.
A more advanced option is to get a backup device — a second hardware wallet to store a copy of your keys. It will come in handy in case the first device gets stolen, as you will have quick access to your keys and will be able to move the assets before its too late.
We recommend to put the second device in a secure place within your home rather than put in a bank deposit box or a safe at work, so that’s it’s always close by in case of an emergency.
Storing Your Backup
After you made a backup file and encrypted it, you have to decide where to store it.
The most important rule is to never store the file on the same device that hosts your software wallet. If you do that and hackers compromise the device, you can tell your private keys bye-bye.
You could store the backup on another PC, notebook, or even a mobile phone or tablet. Or you can use a USB drive for safekeeping. The safest way to store a backup file is to upload it to a USB drive, and place the drive in a safety deposit box at a bank, or in a safe.
There is also an option to store the file in the cloud storage, but we don’t recommend it even if you encrypt the file.
Go Make that Backup!
Backup is a necessity for every crypto user. Even if you are just starting out with crypto and recently made your first tester investment, it is important to develop a good habit of protecting your assets from the get-go.
Remember that you and you only hold the responsibility to secure your assets. There is no “password recovery” option for Bitcoin so make sure that you create a proper backup and store it in the safest place to always have a plan B in case something bad happens.