Bitcoin (BTC) is often called digital gold among crypto enthusiasts, because of its leading market position, and highest coin value among cryptocurrencies. BTC has been dominating the crypto market since its launch back in 2009 and even though there are more than 17,000 altcoins, BTC holds over 40% of the total market. Just to put things in perspective, Ethereum has between 10 and 15% of the total crypto market cap, while all other cryptocurrencies combined make less than 50% of the total market capitalization, according to Coinmarketcap.
This enormous amount of cash in the form of BTC is a prime target for hackers, who are constantly trying to scam people and get hold of their Bitcoin stashes. That’s why it’s highly important that BTC holders keep their coins in reliable crypto wallets with extensive security measures, designed to keep their BTC safe at all times.
However, sometimes even when you store your crypto in a top-quality wallet, you might lose access to the coins. You might lose your phone or you might damage your hardware crypto wallet and render it inaccessible. For these reasons, all Bitcoin wallets can be backed up and restored on another device.
Let’s take a closer look at how the BTC blockchain and its transaction mechanism work to understand how to backup your BTC wallet in case you lose your phone or hardware device.
Table of Contents
The Bitcoin Blockchain
Cryptocurrencies run on blockchain networks and the BTC chain was the first successful implementation of this technology for the use of digital currencies. Many early altcoins such as Litecoin (LTC), Dogecoin (DOGE), and Ethereum (ETH) copied the key components of the BTC programming code and launched their blockchains based on the original BTC network. The Bitcoin blockchain has never been compromised by cyber attackers and it represents one of the best blockchain models in the industry in terms of security, but it has many scalability issues and it isn’t environmentally friendly because it consumes a lot of electricity.
The Bitcoin blockchain is a linear string of data blocks that are set in chronological order from first to last block. Each of these blocks contains 1MB of transaction data and depending on the size of a transaction, a block can store multiple transactions.
Since BTC doesn’t exist physically, the blockchain needs to have some sort of mechanism to conduct transactions between users. This is done with the help of Bitcoin addresses. Your BTC public address is your virtual location on the Bitcoin blockchain where you can receive coins and safely store them. All public addresses are visible to anyone through a BTC blockchain explorer and anyone can see the exact number of coins stored in any address. However, there’s no personal information attached to public addresses and people can’t see who is the owner of a certain public address.
In order to access and spend funds stored in a public Bitcoin address, you need to have the corresponding private key, which are also called private addresses. Private keys act as passwords that prove your ownership over a certain amount of BTC that’s stored in a certain public address. When storing BTC in a crypto wallet, you aren’t actually storing the coins themselves. Instead, you’re storing the private keys to your coins.
Without the appropriate private keys, no one can spend or steal your BTC, and that’s why hackers desperately attempt to get hold of people’s private keys because they are the only thing that can allow them to illegally send someone else’s BTC to another public address and steal the funds.
The mechanism behind Bitcoin transactions is a key part of blockchain technology and it’s the reason why hackers can’t just intercept funds while they’re being transferred and steal them during a transfer.
Bitcoin transactions can best be described as cryptographic messages that contain various pieces of information. When you’re conducting a BTC transfer, you aren’t sending the coins themselves. You’re actually sending information that enables a shift of ownership over a certain amount of BTC from one public address to another, with the help of your private keys. Once the coins are sent to another address, they can only be accessed with the appropriate private key for that address.
Each BTC transaction carries information about the sender, recipient, the exact amount of transferred coins, a transaction ID, and timestamp. The transaction ID is unique for every transaction on the Bitcoin blockchain and the algorithm makes it impossible for two identical TXIDs to ever occur. The transaction ID is used for tracking your transfers through a block explorer, while the timestamp acts as an additional differentiation mark to label the exact moment in time when that transaction was processed. These pieces of information are immutable and in case a hacker managed to breach the BTC chain they wouldn’t be able to hide the original TXID and timestamp, which would automatically raise a red flag among BTC network nodes.
Transactions are processed by Bitcoin network nodes which are crypto miners with their powerful mining rigs. It’s their job to verify transactions by using their hashing power to find the right 64-digit alphanumeric hash for each transaction. Once miners find the right hash for a transfer, they send the hash out to the whole BTC network as proof of work. Only after several additional nodes confirm the validity of a transaction can it be added to the next block of the blockchain and processed to its final destination. This mechanism is the Proof of Work (PoW) consensus algorithm and once a transfer is approved, the block containing the transfer data is immutable and can never be changed.
How Do Crypto Wallets Work?
The Bitcoin PoW blockchain mechanism has never been breached by hackers and it’s considered one of the safest blockchains in the world. The main reason why the BTC blockchain is so secure is that it’s enormous, and the only way cyber attackers could succeed in changing the contents of a data block is if they would gain control over at least 51% of network nodes, which would give them authority to edit approved transactions. Because of the huge size of the BTC network and the existence of thousands of independent system nodes, a successful 51% attack is nearly impossible. That’s why cyber attackers are focused on stealing Bitcoin private keys.
It’s the job of crypto wallets to ensure the safety of private keys. Crypto wallets come in the form of apps or specialized USB devices in the case of hardware wallets and they use various security measures to keep BTC private keys safe. Wallets use advanced encryption solutions, passwords, passphrases, two-factor authentication of transactions, and recovery phrases as barriers that make it very difficult for hackers to steal private keys.
Bitcoin Wallets and Recovery Phrases
Whichever type of crypto wallet you decide to use for storing your Bitcoin, one of the most important things is to have a strong password and keep your wallet access data only known by yourself. Additionally, always store your recovery seed phrase in a secure location in case you lose the device on which you’re using a crypto wallet, or if you lose your hardware wallet. Be sure to keep your password and recovery phrase in different locations in case one of them gets compromised.
It’s not the end of the world if you lose your crypto wallet. Your wallet is always protected at least by a password, but if you’ve lost access to your crypto wallet and don’t have your recovery phrase stored anywhere, then your funds really are lost, because you can’t restore the wallet’s content on a new device.
A recovery phrase usually has the form of 12,18, or 24 random words, which are generated when you create a wallet account. The best thing you can do is write those words on a piece of durable paper and store it somewhere safe, or write the phrase in a text file that’s stored on a USB drive with no internet connection in a spot only known to you.
If your wallet gets lost or stolen, you’ll be able to recover its contents with the seed phrase.
Software Crypto Wallets
Software crypto wallets, also called hot wallets and online wallets, are one of the most popular solutions for storing Bitcoin and other cryptocurrencies. However, there are hundreds of wallet manufacturers on the market, but only a handful of them really apply extensive security measures. Some of the most popular software wallets for storing BTC include Exodus, Trust Wallet, and Atomic Wallet. All of these wallets come in the form of mobile apps compatible with Android and iOS devices, while Exodus and Atomic Wallet are also compatible with desktop devices that use macOS and Windows operating systems.
These are highly trustworthy software wallets that are multi-currency storage solutions that can be used to store hundreds of different crypto assets besides Bitcoin, plus they have built-in crypto exchange and purchase features. The private keys are protected by passwords, recovery backup phrases, and optional two-factor authentication. Also, the keys are always stored on your device and not on company servers, which gives you full control over the private keys and they can’t be compromised unless your device is hacked.
It’s possible to import your backed-up BTC wallet into any of these apps in just a few minutes.
Cryptocurrency Hardware Wallets
Hardware wallets are generally considered safer than software wallets because they don’t require a constant internet connection to operate. Hardware wallets are offline wallets because they always store private keys offline, which makes it impossible for cyber attackers to steal them through a web hack. Trezor and Ledger are the most popular cold wallet manufacturers and their devices offer BTC storage capacities as well as the possibility of storing hundreds of altcoins.
Hardware wallets offer some of the best cryptographic protection available on the crypto market through PIN codes, passwords, recovery phrases, and advanced protection from manual hardware hacks. In order to operate a hardware wallet, you need to install appropriate firmware on your desktop or mobile device. However, you don’t need to worry about your private keys being compromised by the internet connection when transferring assets because the hardware has special web connection barriers that keep your private keys safe.
Hardware wallets offer simple wallet backup features, which enable users to recover the contents of their wallets with their recovery phrases.
This Is How to Backup Your Bitcoin Wallet
Backing up your Bitcoin wallet is a fairly simple and straightforward process. The procedure might be slightly different between various wallet manufacturers, but it generally looks like this:
- Open your wallet app and enter the wallet account you wish to backup. Most software wallets as well as hardware wallets allow users to create multiple wallets within the app. For example, you can have a specific wallet in your Trust Wallet app for storing your Bitcoin.
- Go to your wallet settings and find the Show Recovery Phrase option.
- Most wallets will require users to enter their wallet password before showing them the recovery phrase as an extra security measure.
- Once the wallet shows you the recovery phrase, write it down on a sturdy piece of paper and keep it in a safe place. You can also keep it on a separate flash drive but never keep it on your PC’s hard drive because of the internet connection and possible computer failures. Also, never store the recovery phrase on cloud storage services such as Dropbox because that’s a very easy target for hackers.
- Your BTC wallet is backed up and if you ever lose the device you’re using to access it or if you lose your cold storage, this recovery phrase is the backup of your wallet. With it, you’ll swiftly recover your entire wallet and be able to import it as a new wallet into the app of your choice.
A Few Ending Words…
Since cyber attackers can’t hack the Bitcoin blockchain thanks to its huge size and proof of work consensus mechanism, the only thing they can do is try to get hold of your private keys. That’s why you should always use a trustworthy cryptocurrency wallet and keep a copy of your recovery phrase as the backup of your BTC wallet.