Well, if you’re reading this post, you’ve obviously decided to venture into the thrilling world of cryptocurrencies. Whether you’ve opted to try some of the mining options I’ve covered before, or you’ve just invested in a promising crypto project, your digital wallet is now brimming with hard-earned crypto treasures.
But in the midst of this excitement, have you considered the safety of your valuable assets?
If you haven’t, now is the time.
The most basic level of protecting your new assets is to get them into your self-custody wallet, and backing that wallet up.
Backing up your cryptocurrency wallet involves creating duplicate copies of essential wallet information, like your seed phrase. This ensures that in the event of an emergency, your crypto assets can be quickly accessed and retrieved from the backup. These copies should be secured in separate and safe locations.
Regardless of whether you’re an experienced HODLer or a new investor, backing up your wallet is the foundation of responsible crypto ownership.
As a seasoned cryptocurrency expert, I understand how overwhelming this world can be for newcomers. I’ve watched many overlook the significance of backing up their wallets, only to regret it later.
I’m here to guide you through the complexities of wallet backups, no tech whiz, or crypto guru required.
Together, we’ll explore secure backup methods, best practices, reliable storage solutions, and pitfalls to avoid.
I hope to show you that backing up your cryptocurrency wallet is not just about protecting your investments; it’s about empowering yourself to confidently traverse this new financial frontier.
Crypto Wallet Basics
So, let’s dive into the world of cryptocurrency wallets and how they work.
A crypto wallet is a digital tool that allows you to interact with blockchain networks. It doesn’t physically store your crypto assets but rather, it stores your cryptographic keys. These are public and private keys that grant access to your digital currency and authorize transactions.
There are various types of cryptocurrency wallets. These include desktop, hardware, mobile, online, and paper wallets.
5 Types of Wallets
These days it can be down right overwhelming with the number of wallet options you have in the space.
Please realize that all of these options require a backup in order for you to regain control of your crypto if you ever lose access to your initial wallet.
Let’s take a quick look at each type of wallet I just mentioned.
Desktop Wallet: A desktop cryptocurrency wallet is a software program installed on a user’s computer that stores the private keys associated with their crypto assets. It allows users to send, receive and store digital currencies, view transaction history, and manage multiple wallets from one interface. Recommended Option: Exodus Wallet
Hardware Wallet: A cryptocurrency hardware wallet is a physical device designed to store private keys and digital signatures securely. It provides users with a secure, offline environment for storing their crypto assets. Recommended Option: SafePal S1
Mobile Wallet: Mobile cryptocurrency wallets are digital applications that enable users to store, send and receive cryptocurrencies from their mobile devices. Private keys are stored securely on the device. Recommended Option: Trust Wallet
Online Wallet: An online wallet is most often a web-based digital wallet, and is hosted remotely. However it can also be a browser based wallet. Those hosted remotely are usually custodial wallets, so the user does not have control over their private keys. Browser based options are usually noncustodial, giving the user complete control of their keys. Recommended Option: MetaMask Wallet
Paper Wallet: A paper wallet is a physical copy of a user’s public and private keys. This can be printed onto a piece of paper, allowing users to store their crypto assets offline, otherwise known as cold storage. Paper wallets are primarily used these days by Bitcoin ATMs.
As I mentioned in the online wallet description above, there is another category of crypto wallet that is good to understand as we move forward.
Custodial & Noncustodial Wallets
For all of the wallets I just mentioned, there are custodial and noncustodial possibilities.
I recommend noncustodial wallets for better security.
The basic difference between these two types of wallets is, who has control over the keys.
Distinguishing between these two types of crypto wallets is important to make sure you maintain control of, and access to, your assets. So, I recommend you visit this article for more details.
When it comes to backing up your wallet, you primarily need to secure your seed or recovery phrase, which acts as a master key to your wallet.
However, some wallets require you to back up the wallet.dat file, which contains all the essential information related to your digital currencies, including addresses and balances.
Although understanding these wallet categories is important, there is one other piece, whose importance dwarfs these.
Seed or Recovery Phrase
As I continue on with this post, I’m going to try to avoid technical jargon wherever possible.
However, there are some crypto specific terms that you should be familiar with in order to effectively function in the space.
One such term is seed phrase.
A seed phrase is a set of 12, 18 or 24 random words, derived from a mathematical algorithm that acts as the “master key” to your wallet. Your seed phrase is crucial because it can recreate your wallets private keys and addresses. This allows you to restore your wallet, and regain access to your crypto assets.
The seed or recovery phrase for your cryptocurrency wallet is generated when you set up your wallet.
During this process, the wallet utilizes something called a deterministic algorithm. This basically transforms your seed phrase into a hierarchical group of keys.
Through a process called entropy, the uniqueness of your wallet is created. This algorithm determines the word list to be used, the length of the words, and more.
Frankly, there is SO MUCH MORE to a seed phrase. Because of this, if you want to have a more complete understanding of your seed phrase, you need to read this article!
But for now, there are a few key points to keep in mind when it comes to seed phrases.
First, your seed phrase is the key to your kingdom. Don’t share it with anyone.
Second, a wallet will only generate one seed phrase.
Third, when prompted to, you need to copy the seed phrase exactly as displayed. The words must be spelled correctly, and in the proper order.
Finally, some wallets will allow you to skip this step and complete it later. THIS IS NOT RECOMMENDED.
Writing down your seed phrase is the most critical component of the backup process. So, let’s talk about this in greater detail.
Wallet Backup Process
One of the phrases you will hear often in the crypto space is “Be Your Own Bank.”
As intriguing as that sounds, most people don’t appreciate the magnitude of what’s involved in being your own bank.
Most people who jump into crypto are looking to make some extra money, perhaps through some of the mining options that I discuss.
And, while that is probably one of the more exciting parts of being your own bank, it isn’t the most important one.
One of the key components of the self-sovereignty that cryptocurrency provides, is having to ensure that your assets are safe, and accessible whenever you need them.
This is where backing up your wallet comes in.
There are three methods for backing up your wallet. We are going to talk about them from the easiest and most effective, to the most difficult and risky.
Secure Your Seed Phrase
This is probably the easiest, and most effective way to back up your wallet.
Think of this like hiding a spare key to your house somewhere. By doing so, you can never lock yourself out.
The first step in this process is identifying your seed phrase or recovery words.
As I mentioned earlier, these are a set of 12, 18 or 24 random words which are usually presented to you during the wallet setup process.
Once you have identified your seed phrase, the next step is to secure it.
The most tried and true way to do this is by writing your seed phrase down on a piece of paper, and storing it in a safe location (such as a fireproof safe or safety deposit box).
Safety Tip: It’s best NOT to store your seed phrase using an online server or cloud based storage. These can be compromised and hacked.
As an additional layer of security for your seed phrase, consider having multiple secure copies of it, stored in different geographical locations.
But, there are updated options to help you better secure your seed phrase, and they are all steel.
Many hardware wallet manufacturers now have wallet backup options made from steel.
Why steel?
Unlike the traditional paper backup, a steel backup is damage, fire and water resistant.
Two of the most popular options are the Ledger Steel Capsule and the SafePal Hardcore Bundle.
Once your seed phrase is stored securely, as I mentioned earlier, make sure never to share it with anyone.
Finally, you should also periodically review your wallet backup process to ensure that everything is up to date and secure.
The next means to backup your wallet is by backing up the main file.
Backup Your Wallet.dat File
The wallet.dat file is the main file that stores all of your critical data related to your digital assets. This includes things like addresses and balances, as well as other important information you need in order to manage your crypto holdings.
When it comes to backing up this file, the process is actually pretty easy. All you have to do is make a copy of the file, and store it in a secure location.
The wallet.dat file is usually located in your computer’s AppData folder.
Once you locate the file, copy it, and store it in a secure location.
Security Tip: This file is extremely important, so be sure the device you use to store it is encrypted.
As with your paper backup, it’s a good idea to have multiple copies, and store them securely in multiple locations.
The final backup method is considered the most risky option for securing your wallet.
Export Your Private Keys
As I mentioned before, your private keys are what give you the ability to access your crypto assets on the blockchain.
So, keeping them from prying eyes is beyond important.
That’s why exporting your private keys is considered the most risky option for backing up your crypto wallet.
When you export your private keys, it gives you full control over your wallet. However, this also means that it is up to you to store, and secure the file.
The process for key extraction can vary from wallet to wallet, but generally you can export your private keys to a CSV or JSON file for storage.
Either way, these files should always be stored on an encrypted device, and kept in a secure location.
Once you have your wallet backup complete, the question becomes, how often should you create a backup?
Backup Frequency
The frequency of wallet backups depends on your risk tolerance, crypto activity, and holdings.
If you are a day trader or have large holdings, then it is probably prudent to create backups on a weekly basis.
For those who are more casual crypto users, creating a backup every month or two is probably sufficient.
Ultimately, the more significant your holdings, the more crucial frequent backups become.
The most important thing is to ensure that your wallet backup process remains up-to-date and secure at all times, which leads to our next step.
Backup Testing
To ensure the effectiveness of your backups, you should verify and test them.
You can test your backups by using them to restore your wallet on another device.
To check for file integrity, you can use checksums. Basically this is a small packet of data that is used to verify a file.
The bottom line is, once you have a wallet backup, you want to ensure its stability.
Prioritize Security
Backing up your cryptocurrency wallet is the lifeline to your financial success in the crypto space. Without a proper backup, you risk losing access to your valuable assets.
That’s why it is important to prioritize security when it comes to your wallet backup.
Take the time to understand and complete each of the three methods listed above for backing up your wallet. That way, you can rest easy knowing that your crypto assets are safe and secure.
Take control of your financial future by adhering to best practices for wallet backups, securing your peace of mind, and safeguarding your digital wealth.
