Why You Need to Back Up Your Wallet
Storing funds in bitcoin is quite different than with traditional methods such as banking. In fact, funds aren’t really stored anywhere in bitcoin. Instead, coins are recorded on bitcoin’s shared ledger and are locked to specific private keys. Bitcoin wallets manage the keys used to spend, or unlock, bitcoin.
Anyone who has access to your wallet backup has full ownership over your coins. This makes it especially important to make sure nobody else can find them. You should store your wallet backup somewhere that it can’t be found either deliberately or accidentally. Remember that with the internet, people don’t even need to physically enter your house to gain access to your backup if it’s stored on a computer. There are computer viruses designed to find wallets and send bitcoin to the hackers’ own wallets.
You also need to consider the possibility that your wallet backups could be accidentally destroyed. For example, if you have a bitcoin hardware wallet with the backup phrase written on paper in the same house as the hardware wallet, a flood or fire could destroy both your wallet and your backup. Without any way of recovering your wallet, your funds would be lost forever.
Choosing a Backup Medium
The simplest way to store your wallet backup is by writing out your seed phrase on paper. This is known as a paper wallet. Benefits of the paper wallet method are that it doesn’t use any computer connections, it is simple, and anyone can do it. The main drawback to paper wallets is that they are not durable and can be easily damaged. It can also be very easy to misplace or accidentally discard what may appear as a scrap piece of paper.
Steel plates, such as the SEEDPLATE by Coinkite, provide a much more durable option than paper wallets. Typically, you use either steel stamps or a punch to mark the letters of your seed phrase. The benefits of steel plate backups are pretty obvious – they are very durable and can withstand water or even fire in some cases. The biggest drawback to using steel plate backups is that they are more difficult to set up than paper wallets. Steel plates are also more expensive than paper wallets, which are typically free.
Whether you use paper or steel to record your wallet backup, it’s important to remember that you need to record more than just the seed phrase to be able to recover your bitcoin.
Where to Store Your Wallet Backup
Wherever you decide to store your wallet backup, it’s a good idea to keep it secret. You want to make sure that nobody will accidentally find it. You also want to make sure that a burglar specifically looking for wallet backups wouldn’t be able to find it. It can be a good idea to store your wallet backup somewhere away from your personal residence.
Although it is technically possible to memorize your wallet backup by memorize the 12 or 24 word seed phrase, it is not advisable. It can be easy to forget some words, or the order they belong in, especially if you were to receive a head injury of some type. This brings us to another important point with wallet backups – make sure your heirs know how to recover your bitcoin in case something happens to you. It’s not fun to think about, but without your wallet backup your bitcoin would be lost.
It is a good idea to store multiple copies of your wallet backup in separate geographic locations. That way, if disaster strikes and you lose one backup to a flood or fire, you will still be able to recover your bitcoin.
You need to create a backup of your wallet so that if your computer fails you have a way to restore your wallet. It’s important that you keep the location of your backup secret – other than letting a loved one know how to access it in the event something happens to you. Whether you choose to store your backup on paper, steel, or some other medium, you should create multiple copies so that if one is destroyed then you can still recover your bitcoin.