What happens to my money when I lose the password to my wallet?
This is an interesting question that comes up a lot when people are new to the crypto world – and it’s all down to the fact that you and only you are responsible for what happens to your money.
The seed phrase is a set of 12 or 24 words that you receive once you create a new wallet. With these words in your possession, you become the absolute owner of the funds in that wallet.
If you lose the seed phrase you lose access to your funds and that is why it is so important to know how to keep them safe.
We are used to a world where things function slightly differently – even as adults, we aren’t considered smart enough to make decisions for ourselves. This is why governments all over the world have become larger and more oppressive over the last couple of years.
It is within this larger paradigm that people take almost no responsibility for their actions. Passwords to websites and bank accounts can be easily reset once lost but we also allow large corporations to snoop around our most intimate data. They use this data to create a comprehensive profile of us – how likely we are to spend on a house, a car, or on an insurance policy for example. They categorize our spending habits and sell this data to the highest bidder. In the past, we believed that our data online was completely safe but now on the contrary we know that the sale of our data is integral to the business model of these corporations. This data is not only sold to advertisers but also governments and political campaigns. They can swing the results of an election just by nudging the right group of people online. This online influence is invisible, and it circumvents all the checks that we would normally have if this was done in the real world.
This rabbit hole goes deep – very deep – but it all starts with a preference not to be responsible for our privacy online. We have traded privacy for convenience. But, at what cost? I was talking to my mum about Bitcoin Cash and other cryptos the other day. I was telling her that it’s a good way for her to protect her savings from being eroded by inflation. She was very disappointed to hear that she needs to pay a fee to convert her rupees into BCH, pay a small fee to transfer funds, and pay to have her money converted back to fiat. She was questioning why BCH had so many fees when her bank had none. This sentiment is fully understandable and the explanation for this will be found in a future article. We are so used to getting things for free that we have forgotten that it costs money for people to do these tasks for us. I prefer if this money came directly from us then from the sale of my data. But this alas is a personal choice. This information however should reach everyone’s ears. It is impossible to have a free society without people being properly educated regarding how these systems function.
Now, back to the original topic of this article. Losing the 12-word backup phrase to your non-custodial crypto wallet is the same as throwing your physical wallet in a fireplace. Even leaving your wallet at a bus stop wouldn’t be a correct analogy because there is a hope of you finding your wallet again – your city might have a lost and found room or a person who finds it might contact you. If you truly have lost your backup phrase, then I’m afraid that the money in your wallet is also gone forever. About 20% of currently minted BTC has been lost forever – that is 3.7 million bitcoins with a worth of about 135,150,862,000 USD! Try to wrap your head around that!
Every time coins get lost like this; they are dormant in their wallets. They don’t enter circulation and hence add value to the remainder of the currency that is in circulation. In some cases, bitcoin wallets have been lost in old computer hard drives, in other cases, the owners of the currencies have died without passing on their recovery phrase or private key to anyone.
1- Do not write down your seed phrase digitally. This is the most common mistake that people make. Google keep, dropbox, word documents, etc are simply not secure enough for you to store the key to your fortune there. It is particularly important not to write down your seed key digitally because if your device (mobile, computer) is infected, a hacker could gain access to your funds. Your account could also be deleted by the company itself or blocked by the government. We know that cryptos are going to become an especially contentious issue in the future and it's good to be prepared.
It is preferable to write down your seed phrase in a physical way. It can be a piece of paper, a metal plate, or whatever will help you in the task of preserving those words over time without suffering wear and tear or danger of accidents.
2. Make Multiple copies
Most people choose to write them down on a piece of paper. It is advisable in such cases to make several copies of your seed phrase and stash them in discreet locations. Avoid notebooks or other books that might be easily discarded by either you or another person. Make sure you keep a list of the places where you have hidden them or you might just forget.
3. Write a short story using the words from your seed phrase
Another idea is to write a short story or poem using the words in your seed phrase. Make sure that you have a strategy to remember which words are part of the seed phrase and which are not. If it is discreet then you can upload your story anywhere and mix it in with hundreds of other articles.
4- Keep words away from the cameras
It is of vital importance to keep your seed phrase away from any type of camera that can read them. Computers can decipher any kind of handwriting and can easily convert what you have written back into digital format. It is a good idea to hide your seed phrase from cameras when you write it down for the first time and when you use it to backup your wallet.
5- Do not read your seed phrase aloud.
This tip is based on the same premise as the previous tip and is just as important. Do not give malicious actors opportunities to steal our seed and take our cryptocurrencies. No matter what the current value of your cryptos are its better not to allow people the opportunity to steal it.
Microphones on electronic devices can be an attack vector that bad guys often exploit, which is why it’s critical not to say your seed phrase out loud. Never.
6- Be the only one with access to them (or only share them with people you trust a lot).
Remember that these magic words are the key to your funds and, as with the keys to your home, it is best to share them as little as possible.
I am not going to tell who you should or shouldn't share your seed phrase with, but in my opinion, I recommend doing it only with people you trust a lot and who are unconditional. Be especially careful in sharing it with partners or people who today may be part of your life, but it is not certain that they will be in the future.
7- Create a plan in case of accidents
Accidents can happen at any time, and it is best to be prepared in case that happens. Create a plan in case of unforeseen events so that your trusted people can access the funds even if they do not understand much about the world of cryptocurrencies. It will be enough to share with your trusted people where the seed phrase that grants access to the funds is located.
8. It is important to be incredibly careful when choosing the right wallet for your funds. Do your research and study the companies and the team behind each wallet.