Hardware cryptocurrency wallets are known for giving users complete control of their crypto and provide greater security, but such wallets are prone to risks such as theft, damage or loss.
What does all your Bitcoin mean (BTC) lost forever if the hardware wallet is lost, burned or stolen? Not at all.
There are several options for restoring cryptocurrency for people who have lost access to their hardware wallets. The only requirement to recover a crypto asset, in this case, is to maintain access to the private key.
A private key is a cryptographic string of letters and numbers that allows users to access crypto assets as well as to complete transactions and receive crypto.
Most crypto wallets typically provide the private key in the mnemonic form of a recovery phrase, which contains a human -readable backup so that the user can recover the private key. Mnemonic forms are usually enabled via BIP39, the most commonly used standard for generating seed phrases for crypto wallets.
Also referred to as a seed phrase, the BIP39 recovery phrase is based on a password consisting of 12 or 24 random words used to recover a cryptocurrency wallet. Crypto wallet platforms typically generate a seed phrase at the beginning of creating a wallet, instructing the user to write it on paper.
Not your keys, not your coins
According to executives at major hardware crypto wallet companies Ledger and Trezor, the safety of recovery phrases is more important than keeping hardware wallets safe.
Keeping private keys secure is a guiding principle for the crypto community, which is in the sentence: “Not your keys, not your coins.” The principle means that users cannot control coins if they do not have a private key.
Ledger and Trezor wallets allow users to regain access to the wallet via a seed phrase by using another hardware wallet.
“Users can recover their wallets and funds in other new Ledger wallets. Alternatively, they can also recover them in Trezor, SafePal or other hardware wallet devices,” Ledger chief technology officer Charles Guillemet told Cointelegraph.
Users can also turn on the software wallet to access funds if the hardware wallet is lost, stolen or damaged. “If you lose your Trezor, but you still have the recovery seed, you can recover the funds through many hardware wallets and software wallets on the market,” said Trezor chief information security officer Jan Andraščík.
According to Ledger and Trezor executives, the list of compatible software wallets includes platforms such as Electrum, Exodus, MetaMask, Samourai, Wasabi, Spot and more.
Threats to backup words
Because the security of recovery phrases is a top priority for maintaining access to crypto wallets, it may be that some are thinking about the best way to protect these seed phrases.
“Preserving seeds is one of the most important topics in Bitcoin security,” Andraščík told Cointelegraph. He points to three main threats when it comes to BIP39 passwords: those caused by the users themselves, natural or man -made disasters, or theft.
Loss of the recovery phase is very common: wallet users may accidentally throw it away or simply don’t realize its importance when first creating a wallet.
Users can also choose the wrong place to store recovery phrases, with a common mistake being to simply drop the phrase online. Crypto wallet users never digitize seed phrases to avoid unpleasant occurrences such as hacking, Guillemet Ledger said, adding:
“It’s most important for users to secure their recovery phrases. They should be stored in a safe place and not digitized – in other words, don’t put your words in emails or text files and don’t take photos.
So, generally crypto wallets recommend users to just write the seed phrase on paper and keep it in a safe place.
Tips to protect your recovery phrase
In order to ensure reliable protection for word recovery, one can go beyond just writing it on paper.
Ledger and Trezor executives provided a number of recommendations for crypto wallet users to boost seed phrase protection, including using fire storage capsules or steel plates to engrave recovery phrases.
Other sophisticated ways to protect seed phrases also include spreading the backups between multiple groups of people and locations such as families, safe boxes in banks, or secret places in the garden. One such method is known as Shamir Backup, allows users to distribute private keys so several parts that, together, are necessary to recover the wallet.
While hardware wallet providers do their best to help users recover assets if they lose their wallets, there is still nothing that can be done about losing a recovery phrase.
This is because private keys are designed to be held only by noncustodial wallet users, Trezor’s Andraščík said. He noted that the principle of noncustody and its security implications are absolutely against the idea of having a “backup”, adding:
“If someone has the opportunity to recover your Bitcoin, it means they have access to your Bitcoin, and you have to trust that those actors will treat you well. We eliminate the need to trust you, and more importantly, we encourage verification.”
“Ledger is also used to improve the overall user experience, removing pain points without compromising security. That said, custody itself remains the DNA blockchain and the DNA of Ledger. Users certainly remain in control,” Guillemet said.