Creating a backup of your bitcoin wallet is one of the most important steps you will take in assuring that your funds remain safe and secure. This guide will help you understand the basics of how wallet backups work and why they are important. Furthermore, we will explore the different types of backup, proper storage, and suggestions for storing your backups securely. Finally we will discuss how to use your backup to recovery funds from a lost or damaged bitcoin wallet.
Basics of Bitcoin Wallet Backups
A bitcoin backup acts as a key to your bitcoin funds. This key proves that you have access to spend bitcoin from a wallet. This means that anyone that has access to your key can also spend your bitcoin. Like a combination to a bank vault, anyone with the combination can access the money inside. The same concept applies to your bitcoin wallet. Keeping your combination, your key, in a safe place is critical to making sure no one steals your bitcoin. You would not want to leave a combination to your money safe out on the kitchen table for your friends or neighbors to see. The same concept applies to your bitcoin key. It needs to stay hidden and in a safe place where you can use it if you need to. Your key is the only tool you have to recover your bitcoin wallet if something happens. If using a PC wallet your computer might crash, destroying your wallet. You might lose or break your cellphone destroying a wallet you stored on your mobile device. You might leave your hardware wallet in your pants pocket and put it through the washing machine. Accidents happen, and having a proper bitcoin wallet backup will prevent you from losing your bitcoin. Without a backup your funds will be lost forever without any hope of getting them back.
Different Types of Backups
There are a few different types of bitcoin backups. The most popular type are backup ‘seeds’, which is most likely the type of backup you will encounter. Make sure you pay attention to this section of the guide as it likely applies to you. A backup seed involves writing down a list of seemingly random words in a specific order. You want to make sure you write down these words using pen and paper. Never copy and paste your backup words or store them digitally. It poses a major security risk and undermines creating a secure backup. These words translate into specific numbers in your wallet software, which represent your key. The reason your key is represented in words is because its much simpler to write down an orderly list of words than it is to write down a series of random numbers and letters. You’re less likely to make a mistake writing down a list of words. That being said, making sure your words are written down in the correct order is also very important. If your backup is not correct, you wont be able to recover your funds in your wallet. Which is why verifying your backup is another very important step. More on that later in the guide. Another thing that is very important to note is that your backup words are randomly generated from your bitcoin wallet software. The order they are placed in are unique to you. Only you have these words in this specific order. Do not copy any words you see in a tutorial video or online guide and use them as your own. This is using someone else’s key and you will lose your bitcoin. Only use the words you have generated yourself using your own software or hardware.
Another type of backup, but much less popular for beginners, is a computer file containing your key(s). Some are called a .wallet file, but not always. It depends on your wallet and how it generates your backup. Many wallets allow you to encrypt this file with a password. Make sure you don’t forget this password, or you will be unable to use the backup if you need to recover your wallet. If you tend to forget passwords, you should treat your encrypted backup password like you do your ‘seed’ style backup, and write it down using pen and paper. Most people with a file backup will store it on external media, such as a flash drive, cd rom, or external hard drive.
Another type of backup, which is more geared towards expert bitcoin users, is a raw private key. This is typically found using paper wallets, which are not recommended for newcomers to bitcoin. Paper wallets are extremely dangerous if not created correctly. Please stay away from these if possible. However, a paper wallet is an example of a raw private key. Some ‘web wallets’ will also generate raw private keys as a backup. A raw private key consists of a long string of random numbers and letters. These should be stored in a .wallet style file and encrypted for maximum security, or printed out physically, but in a proper manner. Again, its better to avoid this type of backup if its offered by your wallet. Stick to the ‘seed’ or file methods.
Proper Storage and Best Practices
Storing your wallet backup is just as important as making sure you create a backup. Just like how leaving a key to your house on the front porch is unsafe, you want to make sure your backup key is stored in a safe location with limited access. Since a ‘seed’ style backup is the most popular backup, and most likely the type of backup you will be using, we will discuss it first. We have written down our word list in the correct order and it is now sitting in front of us. The next step should be to secure your paper from anyone that may want to catch a glimpse of it. Folding your paper and placing it in a sealed envelope will ensure its safety from any causal unwanted snooping. This is just a basic safe guard of course. The next step should be finding a place to store your envelope (or envelopes if you have chosen to make multiple backups).
Though not foolproof, examples of secure storage would include:
- Storage safe
- Fireproof lock box
- Gun safe
- Safety deposit box at a bank
- Jewelry box
- Under your mattress
- Under a floor board
- Anywhere you can ensure privacy from other individuals
Using multiple methods, and creating multiple backups is also a good idea. Storing one envelope in a safe located in your home, and a copy in an envelope in a safety deposit box for example. If your house burns down and your safe is destroyed you have a secure backup in another location. Same thing if your bank burns down and your safety deposit box is destroyed. You have another backup at home.
Some storage methods listed above are safer than others. Storing valuables in a physical safe that is bolted to the ground and offers fire protection is usually one of the safest. However, not everyone is able to afford this luxury. Fireproof lock box would be the next best thing, however if not secured to the ground or a heavy object, it is still susceptible to theft and robbery. A safety deposit box is an affordable 3rd party method of securing valuables. Many people rent a safety deposit box to secure important paperwork such as house deeds or vehicle titles. However, your backup is only as safe as your deposit box. For example, a government agency with a lean or warrant on property could confiscate your personal property, including your safety deposit box at a bank. A better practice using a safety deposit box would be to store an additional hardware wallet, containing the same key as the hardware wallet you keep at your house. This way if your safety deposit box is somehow compromised, you could recover your seed from your other wallet before your backup is obtained.
If you are still unable to secure your backup (or multiple backups) using the these methods, you will be forced to get creative with less secure ways of storing your backup. You may want to store your backup however you store your current valuables, such as your jewelry or important paperwork. You may even revert to old timely methods of hiding things, such as in a floorboard, wall, or even under your mattress. The main point to take away from this is to keep your backup out of the hands of other people, keep it hidden in places difficult to find. Somewhere people have limited access to.
The same storage methods apply to a file style backup. You want to store your flash drive in a safe or safety deposit box. Just like creating multiple pen and paper backups of your ‘seed’ words, you especially want to create multiple flash drive, or cd rom backups of your file style backups. A flash drive, just like a computer, can fail or crash. CDs and discs can become unreadable. You need to prepare for the worst possible scenario. You also need to ensure that each backup is working, readable, and accessible to only yourself.
Using your backup to recover your wallet is usually very straight forward. Most wallet software has a built in recovery feature. When creating a new wallet on your software, it will ask you if you want to use a ‘seed’ to recover a wallet. This is where you will type in your word list in the correct order. Your wallet will then use your key to give you full access back to your bitcoin wallet. You are now able to spend your bitcoin again. This recovery method can also be used if you want to access your bitcoin wallet from multiple devices. Recovering a seed you generated on your computer and recovering it on your cellphone wallet will allow you to send and receive bitcoin on both devices.
Verifying Your Backup
Backups are not very handy if you don’t verify they will work before you need to use them. Imagine setting up a home security system but never testing it. Someone might break in and your alarm never goes off. Same thing goes for your wallet backup. You need to make sure that if you ever need to use your backup that it will work. A good way to test your backup to verify it works, its to physically test it. Setup your wallet, and write down your backup words as we did previously in this guide. Now, we will send a small amount of bitcoin from another wallet. A small amount, lets say $1.00. Once we see it has been received, completely delete your wallet. If you have a hardware wallet, reset it to factory settings. Now using your wallets built in recovery method, type in all your recovery words. When your wallet loads you should see your $1.00 balance. You have successfully verified your backup. Its now safe to transfer large amounts of bitcoin to your wallet.