Storing cryptocurrencies in a safe and secure manner is a lot harder than it may seem to most people. While using a hardware wallet is a good first step, it is only part of the story. Most wallets will employ a passphrase or seed to let users recover their funds in the future. Failing to store a backup of this vital information is perhaps the biggest problem for a lot of novice cryptocurrency users right now.
Keeping Passphrases and Recovery Seeds Safe
It is evident a lot of novice cryptocurrency users will run into issues when it comes to securing their funds. More specifically, a lot of people have a tendency to buy Bitcoin or altcoins from an exchange and keep the funds in a wallet connected to that exchange. Although this is a convenient solution, it is anything but secure. Cryptocurrency is all about taking full control of one’s funds whenever possible, without having to rely on third-party service providers to do so.
This means users should move their funds off exchanges as quickly as possible. Moving the money to a desktop or mobile wallet will certainly work, but a hardware solution is always more secure. There are quite a few hardware wallets to choose from these days, and it is well worth spending some money to get your hands on such a device. However, using a hardware solution is only the first step toward storing cryptocurrency safely and securely.
Every hardware wallet – as well as most desktop clients and mobile apps – comes with a password, PIN, or recovery seed. This information is vital for accessing or restoring your wallet should anything happen to it. In the case of desktop clients and mobile apps, breaking the hard drive or selling the phone will often result in one’s funds going missing. With the recovery seed, users can still access their money and restore their wallet on a new device without too many problems.
Backing up this recovery seed or passphrase has proven quite problematic for a lot of users. It is always best to write it down – either digitally or with a pen – and store the paper in a separate location. Some people choose to use fire and waterproof bags to seal their recovery seeds in case of major mishaps. Using a safe is another option, although one should never utilize a safe controlled by a bank. Those institutions have no business storing your recovery seed whatsoever.
One of the biggest misconceptions novice users have is that the hardware device stores cryptocurrency. That is never the case, yet it does contain vital information needed to access your money. Funds will always reside on the blockchain first and foremost. A hardware wallet or any other solution is merely a way to interface with the blockchain through an online or offline method. It is the seed associated with your cryptocurrency wallet which needs to be backed up, as that is the only vital information you need to access your balance at any given time.
Consequently, keeping this seed is the top priority. Having multiple backups is always preferable, as long as only trusted individuals know where this information is stored. There are a lot of ways to store one’s seed, to say the least. Even if someone steals your hardware wallet, takes your phone, or hijacks your desktop client, they would still need this vital information to access your funds. Now is a good time to start taking cryptocurrency wallet security a lot more seriously, as this industry has already attracted criminals taking advantage of novice users.