Bitcoin Backup and Storage – what you need to know
It’s recently been thought that somewhere between 2.8 to 3.8 million bitcoins are lost forever (totaling around $30 billion). The various ways that this can happen are many (from theft to simply forgetting the pin or throwing away that old hard drive); however correctly storing (using a bitcoin wallet) and performing a bitcoin backup may have prevented these hard luck stories.
Reasons for needing a bitcoin backup
First of all you don’t carry around your entire life savings in your wallet for obvious reasons; it is no different for crypto-currency. Some of the reasons are below:
I’m sure the majority of people experience the panic and disappointment that comes with losing a wallet or purse. It’s never intentional and it’s a real inconvenience. The same with goes with a bitcoin wallet.
Should you experience a failed recovery of a backup, lost a hard drive storing bitcoin or had it become corrupted; then the chances are you may lose your wallet (as such) and all the bitcoin within it.
Verification and Counterfeit bitcoins
Just like your standard currencies (coins and banknotes); bitcoin can be counterfeited. However; the two best sensors (touch and sight) to tell if banknotes or coins are dodgy can’t be used to verify that the bitcoin being received is legitimate.
This is where bitcoin wallet software comes into play. The best kind of wallet software will check all transactions against ‘the rules of bitcoin’ (also known as a full node) to verify their legitimacy. As a result; the downside to this is the ability for someone to intercept the transaction and gain access to the balance, transactions and possibly your IP address as well.
It’s possible for theft of bitcoin to occur as well. All someone needs to do is gain hold of the mnemonic phrase of your bitcoin wallet. Once they have this; they have the ability to make transactions as you – most likely to themselves!
Since most average PC’s are suspect to malware – this could come into play when deciding on storage of your bitcoin wallet and bitcoin backup.
The main aim for a bitcoin backup
Backing up your bitcoin wallet helps protect against various threats mentioned earlier.
An important part of this is being able to gain access to your bitcoin should they be stolen, damaged or lost in any way.
In addition; make sure you’re confident with your bitcoin wallet as they all have different backup methods for best protection.
Failing to backup correctly will consequently mean that if you lose the backup and aren’t able to access your wallet, your bitcoins will join the 2.8 to 3.8 million that are lost forever!
Best practices of bitcoin backup
Make sure you take a complete backup of your wallet
Bitcoin wallets can contain hidden private keys in the wallet itself. Backing up the private keys for your visible bitcoin wallets might not be able to recover a great part of your funds with your backup.
Use multiple locations to store multiple backups
Single points of failure can bring down even the most comprehensive backup strategy. If your backup isn’t reliant on specific media, it is less likely that any critical event will prevent your ability to recover your bitcoin wallet. Make use of different media such as USB drives, CD’s. Another thing; a good practice is also creating multiple handwritten copies the mnemonic phrase in different locations.
Run backups on a regular schedule
As with all data, your wallet can change depending on how often you’re performing transactions using bitcoin. It’s important to run regular backups that reflect this or else there is the possibility of partial data loss (which could mean thousands in the long run with the value of bitcoin).
Make sure to encrypt every your bitcoin backup
Any backup is highly vulnerable to hacking or theft. Your bitcoin wallet is the same as your physical wallet. Consequently, encrypting all backups (similar to having a pin code on your bank cards) is an excellent security practice.
In conclusion, these four best practices are similar to any other form of data protection and backup strategy.