Crypto

What happens if you lose or break your hardware crypto wallet?

Hardware cryptocurrency wallets are known for giving users full control of their crypto and providing more security, but such wallets are prone to risks such as theft, destruction, or loss.

Does that mean all of your Bitcoin (BTC) will be lost forever if your hardware wallet is lost, burned, or stolen? No problem.

There are a number of options to restore cryptocurrency for someone who has lost access to their hardware wallet. The only requirement to recover crypto assets, in that case, would be to maintain access to the private keys.

A private key is a cryptographic string of letters and numbers that allows users to access crypto assets, as well as complete transactions and receive crypto.

Most crypto wallets typically provide a private key in the mnemonic form of a recovery phrase, which contains a human-readable backup that allows users to recover private keys. The mnemonic is usually enabled through BIP39, the most common standard used to generate seed phrases for crypto wallets.

Also known as a seed phrase, a BIP39 recovery phrase is basically 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 a wallet setup, instructing users to write it down on paper.

Neither your keys, nor your coins

According to executives from leading crypto hardware wallet firms Ledger and Trezor, the security of the recovery phrase is far more important than keeping the hardware wallet secure.

Keeping a private key secure is a guiding principle for the crypto community, embodied in the phrase: “Not your keys, not your coins.” The principle means that users are not really in control of their coins if they do not own their private keys.

Both the Ledger and Trezor wallets allow users to regain access to their wallets via a seed phrase simply by using another hardware wallet.

“A user could recover their wallet and funds in any of the other new Ledger wallets. Alternatively, they could also be recovered on a Trezor, SafePal, or other hardware wallet device,” Ledger CTO Charles Guillemet told Cointelegraph.

Users can also turn to software wallets to access their funds if the hardware wallet is lost, stolen, or destroyed. “If you lost your Trezor, but still have your recovery seed, you can recover your funds through many hardware and software wallets on the market,” Trezor Chief Information Security Officer Jan Andraščík said.

According to Ledger and Trezor executives, the list of supported software wallets includes platforms like Electrum, Exodus, MetaMask, Samourai, Wasabi, Spot, and others.

Threats to a backup phrase

As the security of the recovery phrase is the top priority in maintaining access to a crypto wallet, one may wonder how to best protect the seed phrase.

“Preserving the seed is one of the most crucial issues in Bitcoin security,” Andraščík told Cointelegraph. He pointed to three main threats when it comes to BIP39 passwords: those caused by the user himself, any kind of natural or man-made disaster, or theft.

The loss of a recovery phase is very common: a wallet user could accidentally throw it away or simply not understand its importance at the beginning of the wallet setup.

Related: Warning: Smartphone Text Prediction Guesses Crypto Hodler’s Seed Phrase

Users could also choose the wrong place to save their recovery phrase, with a common mistake of simply putting the phrase online. Crypto wallet users should never digitize their seed phrases to avoid unfortunate events like hacking, Ledger’s Guillemet said, adding:

“It is paramount that users secure the recovery phrase. It must be stored in a secure place and must not be digitized; In other words, don’t put your words in an email or a text file and don’t take photos.”

As such, most crypto wallets recommend that their users simply write down the seed phrase on a piece of paper and store it in a safe place.

Tips to protect the recovery phrase

To ensure reliable protection of your recovery phrase, you can go beyond simply writing it down on paper.

Executives from Ledger and Trezor provide a number of recommendations for crypto wallet users to increase the protection of their seed phrases, including the use of fireproof storage capsules or steel plates to engrave the recovery phrase.

Other sophisticated methods of protecting a seed phrase also include distributing backups among various groups of people and places such as family, a safe in the bank, or a secret spot in the garden. One such method is known as Shamir Backup, which allows users to distribute their private keys into multiple parts that, together, are needed to recover the wallet.

While hardware wallet providers do their best to help users recover their assets in case they lose their wallets, there is still not much they can do to lose a recovery phrase.

Related: Simple steps to keep your crypto safe

This is because the private key is designed to be held only by the user of a non-custodial wallet, said Trezor’s Andraščík. He pointed out that the non-custodial principle and its security implications are completely against the idea of ​​having any kind of “backup”, adding:

“If someone has a chance to get your Bitcoin back, it means they have access to your Bitcoin and you have to trust that these actors will always treat you with good will. We’re getting rid of the need to trust and instead encourage them to verify.”

“Ledger is also working to improve the overall user experience, eliminating weak points without compromising security. That said, self-custody is still the DNA of the blockchain and the DNA of Ledger. Users are always in control,” said Guillemet.