The crypto world is full of horror stories and cautionary tales of people losing coins, whether it’s a hard drive that’s been accidentally thrown out, a phone that’s been lost with the only copy of a recovery phrase, or someone who’s had their account drained after relying on a screen screenshot of their wallet keys stored in iCloud.
These stories aren’t just urban legends, they happen every single day to normal people. Some people lose hundreds, some people lose hundreds of millions. However, the vast majority of these stories ultimately boil down to one common issue: inadequate backup practices.
Backing up your crypto wallet isn’t just about having a copy of your recovery phrase lying around somewhere. It’s about protecting that copy, ensuring it’s accessible, while also avoiding the creation of new vulnerabilities. In this post, we will guide you through the process of doing just that.
Why backing up your crypto wallet matters
The whole promise of crypto is that you become your own bank. There’s no middleman. It’s just you and your assets, and you’re free to interact with the blockchain ecosystem without restrictions. All you need is to set up a crypto wallet, write down your seed phrase, buy some coins, and you’re good to go.
And while that is definitely empowering, it also means you’re fully responsible when something goes wrong. There is no customer support and no protection for you to fall back on. If you’re using a non-custodial wallet (such as a browser extension of a hardware wallet), those keys are the only way in. Lose them, and the funds are gone.
To put the risks into perspective, it’s estimated that around 14% of the total Bitcoin supply has been lost forever. That is billions of dollars worth of assets permanently locked away and unrecoverable. The takeaway? If you don’t back up correctly, you’re taking a risk with your investment.
What you’re really backing up
So what does it actually mean to back up your crypto? Well, it doesn’t mean just keeping an app installed on your phone or your laptop. In fact, it’s never about the device itself, it’s always about the keys. There are a few forms this can take:
- Private keys: Long strings of alphanumeric characters unique to each wallet.
- Seed/recovery phrases: Usually 12 or 24 random words. These regenerate all your private keys.
- Wallet files: For example, wallet.dat (used by Bitcoin Core) or keystore files from Ethereum wallets.
Whether you’re using a hot wallet or a cold wallet, such as a hardware device, the principle remains the same. Whoever has the keys to your wallet has control of your coins. No exceptions.
Common mistakes that create security gaps
Even when you have the best intentions to back up your wallet and protect your digital assets, there are still plenty of ways that you could end up doing more harm than good. Let’s take a look at some of the main mistakes people make:
Storing seed phrases in the cloud
This is one of the biggest no-nos when it comes to backing up your wallet, but it’s also one of the most common. When you’re given your private keys and 12-24 recovery phrases, the first thing many people do is write them down on their digital notepad or on a Word document.
While this makes sense from an accessibility standpoint, it also means that there is a strong chance your keys have also been uploaded to Google Drive, Dropbox, and iCloud. From there, you’re just one hack or one phishing attempt away from having your account compromised. If someone finds a way to breach your email, which is significantly easier than hacking a hardware wallet, they have full access to your crypto assets.
Screenshots or photos
Another mistake people make is to take photos or screenshots of their recovery phrases. Again, if these files are uploaded to the cloud, you introduce an additional vulnerability that could be exploited. Additionally, if your phone is stolen or someone accidentally sees your picture, your keys could fall into the wrong hands.
Single-location backups
If you only keep your keys in one location, you run the risk of something happening to that backup and losing access to your funds. For example, many people store their coins in a hardware wallet, but they keep their recovery phrase written down on a piece of paper at home. Now, imagine this house burns down in a fire. All of a sudden, not only did you lose your wallet, but your recovery phrase has gone with it. Because of this, it’s always good to have backups in more than one geographical location.
Weak storage materials
Writing your recovery phrase down on paper is a common practice. You can store it physically somewhere, like in a vault, and the main upside is that it is not stored on the cloud. However, paper is weak and it will deteriorate over time, so will the ink.
A solution to this is to physically write your recovery phrase down on durable materials, such as fireproof and waterproof metal plates. This ensures that your physical backups will withstand the test of time and remain legible if you need to access them in the next 10 or even 20 years.
Final word
Backing up your crypto wallet is ultimately about striking a balance between accessibility and security, without leaving any weak points that hackers can exploit. It’s also about minimizing the risk of accidents happening and resulting in you losing your funds,
Most of the horror stories of lost or stolen coins can be traced back to poor backup practices, and unfortunately, the consequences are often permanent. However, if you can simply avoid taking risky shortcuts, such as using cloud storage and taking screenshots, spread your backups across multiple secure locations, and use durable materials for any physical backups, you can dramatically reduce your chances of loss.
Remember, in crypto, there’s no help desk or reset button. Your keys are your wealth, and safeguarding them properly means protecting not only your investment but also your financial independence.
