Mind the physical backup, even when using hardware wallets

New users have a general misconception that hardware wallets are used to store cryptocurrencies, but this article explains how this is far from true.

Hardware Wallets

Deceitful links, exchange hacks, DNS servers’ hijack, and malicious applications. There have been numerous cases of cryptocurrency theft over the years, raising the importance of self-custody, which means being responsible for protecting your digital assets.

However, there’s usually a big misconception from inexperienced users, as most think it is possible to move the coins somewhere, such as an electronic device. A blockchain, the public ledger with transaction records, resides on every computer (node) taking part in such a network.

Therefore, whenever a transfer occurs, the public ledger is changed after being validated by every network participant, meaning coins don’t move from one place to another.

This fact includes hardware wallets, the electronic devices specifically designed to keep cryptocurrencies out of hackers’ reach. Such devices store the seeds and respective private keys for each of the users’ addresses.

hardware wallets

Ledger Nano, one of the many hardware wallets available

Don’t get me wrong. Hardware wallets are great, but their main function is to create random seeds — the 24-word sequence — and to ensure you never have to enter those insecurely. Smartphones and computers might contain malware explicitly designed to collect such data.

Ledger, Trezor, and Cobo Vault are all great options for those looking to store seeds from different cryptocurrencies, including Ethereum, XRP, Polkadot, EOS, Litecoin, ERC-20 tokens, and many more. If you’re Bitcoin only, then ColdCard is very likely the best fit, as it contains more advanced solutions designed specifically for Lightning Wallets and MultiSig.

Would you Trust Your Life savings to a Hardware Device?

However, even the most secure hardware devices in existence can fail, either because of physical damage, electrical malfunction, or even an incorrect software update. One can also account for the possibility of losing it, which shouldn’t represent an immediate risk as those devices are password-protected.

crypto Hardware Device

Question on Reddit regarding hardware wallet malfunction

That’s why it is crucial to store a backup seed somewhere else, preferably on durable material. Stainless steel plates, for example, are very reliable, besides being fireproof and shockproof. Again, there are countless suppliers available in different price ranges.

With the seed in hand, one can easily import data to a brand new hardware device or manually enter that on a mobile (or desktop) software wallet, moving the coins to a safe place.

Important: Never enter the seed — 12 or 24 words — on shared computers, websites, or alike.

Hardware Device

Example of a seed plate for physical backup

As for the steel plate suppliers, the most innovative and reliable ones are Coldbit, StackBit, SeedPlate, and Steelwallet. Keep in mind that although it is possible to store different cryptocurrencies using a single hardware wallet, those will require individual physical backup seeds.

Better Safe Than Sorry

Those who think that hardware wallets and physical backup plates are overly paranoid or excessive probably haven’t read the innumerable posts, even from security experts, from users who have lost coins forever.

From the infamous notebook containing 7,500 Bitcoins sent to the garbage dump in 2013 to the more recent 7,002 Bitcoins locked on a hardware device, those cases have become more widely known for the sheer quantity. However, every year there are hundreds of similar cases happening on a smaller scale.

I beg you to answer: is it worth not spending $120 or $180 to buy a couple of steel plates and have a good night’s sleep?

Leave a Reply

Your email address will not be published.

Related Articles
Read More

How Do Scammers Cash Out Ill-Gotten Gains?

On November 18, Elliptic published a report on decentralized finance (DeFi) fraud in 2021. Elliptic stated that victims lost over $12 billion in DeFi between January and November in the information. The firm noted that $10.8 billion was lost to fraud and theft. That represents...