With a recent influx of crypto users moving away from centralized custodial wallets and migrating to a self-custody solution, we’ve created this guide to help new users understand the importance of recovery phrases (also known as a seed phrase or secret phrase) and give best ways to store your recovery phrase.

Recap on recovery phrases

A seed phrase, also known as a recovery phrase, is a cluster of random words generated by a self-custody crypto wallet at the time of its creation. It can be used as an emergency backup in case you need to restore access to your funds. Depending on the type of wallet you use, they are usually 12 or 24 words in length and must be entered in the same order as they were provided for the recovery to work. It’s important to safeguard your seed phrase and never store it digitally, regardless if you are using a software wallet or hardware wallet. If a device it’s stored on ever goes online, it could potentially be exposed to hackers or thieves. See our full overview to learn more background on seed phrases.

Seed phrase storage rules to live by

Back up your wallets!

As soon as you create a new wallet or key, make sure to record your recovery phrase with your preferred method. Self-custody wallet providers, including BitPay, do not save or take responsibility for your seed phrase. If you lose access to your wallet before recording your seed phrase then your funds are most likely lost.

Keep your phrases offline

If your phrase is in any type of online storage (email, password protector, iCloud, etc.), then it is susceptible to some form of hack. Offline copies of your recovery phrase will limit exposure exponentially. Keeping multiple copies of your seed phrase in different secret locations, while slightly increasing the risk of theft, can improve your chances of keeping it safe. A backup of your backup not only acts as insurance in the case of a fire or other catastrophic event, but it will also help protect against one of the biggest offenders of lost crypto: human error!

Don’t share your recovery phrase

Along with your private keys, the recovery phrase is all that’s needed for someone to take control of your assets. BitPay or any other reputable wallet provider or crypto institution will NEVER ask you for your secret phrase. Only share your recovery phrase with someone you would trust with your assets. Be wary of phishing attempts, as these are the most common means of crypto theft. If you receive an email, text or online prompt asking you to input your seed phrase, it’s most likely a scam.

Establish a protocol in the case that you are incapacitated or pass away

If you hold any amount of crypto and wish for the assets to be accessible by loved ones in the case of unforeseen circumstances, make these preparations now. Add instructions within a secure location accessible to your loved ones or make them aware of your plan.  Note that in some jurisdictions the details of your last will and testament can become public record – check with your local laws before including any information about your crypto assets within your will documents.

Separate funds, split up recovery phrase or use multisig security to limit exposure

Breaking up aspects of your crypto will increase security and can be done a number of ways. First, it can be wise to separate your funds into multiple wallets with multiple recovery phrases, especially if you hold large amounts of crypto. That way if one wallet is compromised then you at least have not lost all of your holdings. Another popular security method is to use a multisig wallet where multiple signers (seed phrases) are required to make transactions. Learn more about multisig wallets.

To take it even further, you can leverage a strategy similar to Shamir’s secret sharing (SSS), essentially breaking your 12/24 word phrase into shares and placing shares in separate but equally secure locations.

The best crypto seed phrase storage options

Store your recovery phrase in a secure environment where it will be safe from thieves (both digital and in-person) and catastrophe, but still accessible in the case that you or a loved one need to access your funds.

Pen and paper

One of the simplest forms of backing up your recovery phrase is with good ol’ fashioned pen and paper. While you can use any piece of paper, it can be helpful to use one with more context for future-you or a trusted next-of-kin. For this reason, BitPay has added a printable recovery template to our wallet app. When you backup a new or existing wallet, you have the option to print the template on which you write down your seed phrase and any additional notes. Restoration directions are also included to help a non-savvy person recover your funds if needed.

Metal backup tool

Another popular option is to use indestructible seed phrase storage devices. These are often made of steel or another metal. They offer protection from fire and water, making them a safe and inconspicuous method of backing up your wallets. Popular options include Ledger’s Cryptosteel Capsule, Blockplate and Seedplate.

USB or Hard Drive

A digital copy of your recovery can be used but be careful to never plug it into a device that’s connected to the internet.

Personal safe or safety deposit box

Regardless of how you record your recovery phrase, it should still be kept away from thieves and the elements. Using a fireproof safe at home or storing in a safe deposit box are good ideas for added protection.

Places you shouldn’t store your recovery phrase

Internet-connected password saver (see: LastPass hack)Email or text messageDigital photoSticky note on your deskDigital notepad file on an internet connected deviceYour memory (while memorizing your recovery phrase is recommended, it shouldn’t be your only means of backup)

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Recovery phrase security wrap up

Remember these best practices for storing your recovery phrase and you’ll be in a much better position to securely store, stack and spend your crypto for the future:

Back up your wallet right away after creating your wallet!Keep your keys offline in a secure location away from thieves and the elementsMake a plan for your next-of-kin or trusted friends to access your funds in case of any unforeseen circumstances.

Filed under: Bitcoin - @ September 19, 2023 5:56 pm