Your Bitcoin is NOT inside your wallet app (and why that saves you)

[Call_Me_Guru]

A concern that comes up among newcomers online: "My phone broke or app crashed, did I just lose all my Bitcoin?"

Understanding how a wallet actually works is important for every beginner and others. I thought I should write something about it today about the mental model every new user needs to understand. I will keep it as simple and short as possible.

1. The Leather Wallet Misconception: Unlike a physical leather wallet, your crypto app does not hold any coins. Bitcoin lives on the decentralized blockchain network. Your wallet app is a software interface that allows you to view and interact with your address on the ledger.

2. What the wallet actually holds: Your wallet app holds your Private Keys derived from the 12 or 24 seed words.

• The Seed Phrase = The Master Key: It grants ownership of the coins associated with your addresses on the blockchain.
• The App = The Pen: It uses your key to sign transactions before sending them to the network.

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3. Beginners education:

• If your phone falls into water or gets destroyed, your Bitcoin is safe as long as you have your offline seed backup.
• If you lose your seed backup, your wallet app staying open is like living on borrowed time. Back it up immediately.
• Never type your seed words into any website, search bar, or form given to you in a Direct Message. No genuine support staff will ever ask for them.

.

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

[Upgrade00]

This should not be convinced to mean that if your phone gets stolen or hacked it cannot be used to take your bitcoins. A wallet with which you interact with private key for signing transactions is your ultimate proof of ownership. If it gets into a different hand the now also own your coins and can take them to a different wallet.

If you lose your seed backup, your wallet app staying open is like living on borrowed time. Back it up immediately.

If you lose your recovery phrase you should get a new wallet and sweep all your fund there.  The seed could have been compromised already, backing it up again does not protect you from any exposure that may have happened.

[Sanitough]

The Seed Phrase = The Master Key: It grants ownership of the coins associated with your addresses on the blockchain.

If your wallet is Electrum, it's fine if you don't add additional words to your seed phrase, but if you do, you might face this kind of problem.

Where the seed phrase alone is not enough to recover your lost wallet.

Just like what happened in this situation, though it was solved.

I had electrum on my mobile phone, on android, I lost the password for it, for entering the phone. I have a wallet seed phrase, with additional words and a password, what is the best way to restore it on a computer with Windows? I try to enter the seed phrase, add additional words, and the button "next" does not work, although there is a check mark, entering additional words. Or if I know the password, can I restore the wallet easier?

[MisFoxie]

We should never back up a lost seed phrase because if someone else gets the seed phrase you lost they will become the second owner of your funds. So in my opinion instead of backing it up again it is better to create a new wallet and transfer all the funds there.  You can edit this line and say,

• If you lose your seed backup, your wallet app staying open is like living on borrowed time. Back it up immediately.

"If you accidentally didn't backup your seed phrase somewhere, your wallet app staying open is like living on borrowed time. Back it up immediately."

Of course if you have evidence that the seed phrase has not fallen into someone else's hands but has been totally destroyed such as being burned in a fire, then there will be no problem if you back it up again.

[Rashlyowl]

I would like to add the next point regarding beginner education to your list, the point is to avoid taking screenshots or photos of the seed phrase & then storing them online (especially on a mobile phone).

I say that based on my bros first hand experience, his phone was broken, so he took it to the shop where he had originally bought it for repairs, you know, the technician handling the phone accessed his entire gallery & found the seed phrase.

My bros lost all his crypto assets after getting his phone back, the story above is our best guess, as it is the only logical explanation for how he lost his crypto.

[PostQuantumBTC]

The Seed Phrase = The Master Key: It grants ownership of the coins associated with your addresses on the blockchain.

If your wallet is Electrum, it's fine if you don't add additional words to your seed phrase, but if you do, you might face this kind of problem.

Where the seed phrase alone is not enough to recover your lost wallet.

I do not think you understand what the OP is talking about, he is only talking about how some people are thinking wrongly that their bitcoin wallet contain their bitcoin, not knowing that it only contain the seed phrase, keys and the bitcoin addresses. But you are taking about passphrase which the OP is not talking about yet.

[uchegod-21]

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

The greatest misconception is people protecting their devices more than they protect their seedphrase. It is not surprising that some people have no backups at all but will protect the device that contains the wallet with their life. They do not know that no matter how well they keep their devices from third parties, they can still lose their bitcoins if their seedphrase gets in the hands of the wrong persons.

[moneystery]

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

Back then, I thought backing up your seed phrase to the cloud was a safer and more convenient option. But that's just bad practice for securing your seed phrase. Your seed phrase needs to be stored offline in a safe place where no one else knows about it.
Even if the cloud storage provider claims that your data is encrypted and protected against unauthorized access, a security breach could still potentially expose your seed phrase and put your assets at risk. So, it's better to keep your seed phrase offline and never store a copy of it on any device connected to the internet.

[Chinesebaby]

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

For me, one of the common misconceptions I had as a newbie when I started my Bitcoin journey was about the phrase "Bitcoin Mining," because when I heard about Bitcoin Mining, I thought maybe there is a particular place on the internet where miners usually go to dig Bitcoin, just as it's been done with physical gold, whereby miners will go and search out a particular spot and dig out physical gold. And that was the mentality I had until I was made to understand that "Bitcoin Mining" simply means a digital act whereby a computer is being used to perform proof-of-work calculations in order to help secure the Bitcoin network, confirm its transactions, and finally compete for a block reward.

[boyptc]

If your phone falls into water or gets destroyed, your Bitcoin is safe as long as you have your offline seed backup.

I know that this is just an analogy but we shouldn't use our phones in storing most of the bitcoins that we have. It's okay to put some if we use mobile wallet but this bear more risks than the wallets that we use when we're at home.

They're good as back ups or for minimal amounts if we use it in trading.

Never type your seed words into any website, search bar, or form given to you in a Direct Message. No genuine support staff will ever ask for

I thought of it before as a convenient way of storing private keys, using emails, cloud storage and other online services that can store data.

But that's the biggest misconception that I've learnt that we shouldn't write it on any cloud form of storage because we're also exposing ourselves to a risk when one or two of our online accounts like the email gets hacked.

[DPHOR]

This is the reason why we should jute down our seedphrase on the process of creating the wallet. For instance, there are people who usually store their seedphrase on their note pad with the hope that whenever they needs they would have to go Open that place and copy them, without them knowing that their phone can damage at any time very easily.
But when the seedphrase are written down on a paper it would enable them restore back their fund back and even if is not that particular they actually input it on another wallet and your balance will display.

[OcTradism]

1. The Leather Wallet Misconception: Unlike a physical leather wallet, your crypto app does not hold any coins. Bitcoin lives on the decentralized blockchain network. Your wallet app is a software interface that allows you to view and interact with your address on the ledger.

You only can interact with your bitcoin if you have access to its private keys so that you can broadcast and sign transactions to Bitcoin mempools, nodes and transactions will be confirmed by miners, relaid to other nodes on Bitcoin blockchain.

Without private keys, you can not do these things.

You can only verify signed messages by other Bitcoin users but nothing more, and surely can not send bitcoins without private keys.

3. Beginners education:

• If your phone falls into water or gets destroyed, your Bitcoin is safe as long as you have your offline seed backup.
• If you lose your seed backup, your wallet app staying open is like living on borrowed time. Back it up immediately.
• Never type your seed words into any website, search bar, or form given to you in a Direct Message. No genuine support staff will ever ask for them.

.

Make wallet backups.
Test wallet backups.
Don't fund that wallet and use it before you do all first important steps.

How to back up a seed phrase.
Write down wallet seeds.

[Peanutswar]

Your bitcoin is on the chain so basically the bitcoin wallet is an act as gate to access with your bitcoins, and now like most of the wallet recommend is to make your seed phrase safe because this time this is the one who acts as key which you need to open the gate and use the bitcoin you have on the chain. Even though you broke the gate still you can access your coins with the use of a key and use another gate. I guess this is the most basic I can explain here.

[Outhue]

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

Back then, I thought backing up your seed phrase to the cloud was a safer and more convenient option. But that's just bad practice for securing your seed phrase. Your seed phrase needs to be stored offline in a safe place where no one else knows about it.
Even if the cloud storage provider claims that your data is encrypted and protected against unauthorized access, a security breach could still potentially expose your seed phrase and put your assets at risk. So, it's better to keep your seed phrase offline and never store a copy of it on any device connected to the internet.

I have lost small Bitcoin this way too, it was in 2017 while I was busy doing my experiments with the internet and learning more about Bitcoin, I had no guidance and I threw myself into the mouth of every traps I came across, but in return I also learnt what is right and what's wrong about crypto wallets. For the first time ever I am starting to think about the crypto wallet that Nakamoto decided to store his Bitcoin in, if he can keep it this long then he did it right unlike many of us who have decided to start trusting hardware wallets more.

[Tetu100]

For instance, there are people who usually store their seedphrase on their note pad with the hope that whenever they needs they would have to go Open that place and copy them, without them knowing that their phone can damage at any time very easily.
But when the seedphrase are written down on a paper it would enable them restore back their fund back and even if is not that particular they actually input it on another wallet and your balance will display.

Storing our seed phrase on our mobile phones is one wrong thing we shouldn't ever think of as an enthusiast. Because you don't know what going to happen the next minute.  However, many has lost their assets through same mistake and with no hope of getting it back.

Furthermore, the best way we can save our seed phrase is to engraved it on a mental steel plate for proper storage and again kept in different locations so that if any is misplaced you can quickly get hold of another. I know some people normally use paper, but I don't think that method is advisable since anything can likely happen in future and probably the paper can be destroyed.

[HajiBagi]

I would like to add the next point regarding beginner education to your list, the point is to avoid taking screenshots or photos of the seed phrase & then storing them online (especially on a mobile phone).

I say that based on my bros first hand experience, his phone was broken, so he took it to the shop where he had originally bought it for repairs, you know, the technician handling the phone accessed his entire gallery & found the seed phrase.

My bros lost all his crypto assets after getting his phone back, the story above is our best guess, as it is the only logical explanation for how he lost his crypto.

Many people have experienced exactly what happened to your bros and it is because they screenshot the photo of their seed phrases in their phone and you know that anything you screenshot will be part of your photo album, and when someone borrowed their phone or they took their phone to a technician or when their phone have a problem, the technician will use the opportunity to check the phone and when they see a seed phrase and they know you might have bitcoin in your wallet, they will write it down and use it to get access into your wallet.

We should always remember that we are not safe from people around us when we have something important like bitcoin, a small mistake can cause us a huge loss of our lives, no one is above mistake and no one is perfect, but we are the one who to be careful of what we are doing when we are holding bitcoin.

[BlackBoss_]

I have lost small Bitcoin this way too, it was in 2017 while I was busy doing my experiments with the internet and learning more about Bitcoin, I had no guidance and I threw myself into the mouth of every traps I came across, but in return I also learnt what is right and what's wrong about crypto wallets.

I am careful and I did not lose my bitcoins. I was lucky that I did not lose my bitcoins when storing them on centralized exchanges, God bless me. With non custodial wallets, I don't lose my coins because I always make wallet backups and check everything for recovery. The step of testing wallet backup for recovery can be ignored by newbies but it's understandable if they skip this step. However, it's very unexplainable why newbies don't back up their wallets because all wallet softwares have that very important reminder.

Even they're newbies, they are possibly very careless to skip this wallet backup reminder and don't back up wallets.

For the first time ever I am starting to think about the crypto wallet that Nakamoto decided to store his Bitcoin in, if he can keep it this long then he did it right unlike many of us who have decided to start trusting hardware wallets more.

If you use a software that generate Bitcoin private key/ mnemonic seed with enough bits of entropy, the remaining task is store your wallets and wallet backups securely, then nobody can access your bitcoin, except you.

[DubemIfedigbo001]

Now to you all, what was the biggest misconception you had about wallet backups when you first started out?

The greatest misconceptions I had that you needed the internet to spend your bitcoin and that CEXs were a safe heaven, maybe a lot of people had this mindset back then. I know better now and I use non-custodial wallets and my Electrum wallet has never gone online in years and I don't plan it goes online even in the future. A good open-source wallet + cold storage is the best shot to protect your coins.

[cryptomaniac_xxx]

It can only be accessed by someone if they know your 12 or 24 mnemonic seed phrase or your private key. That's why that piece of information is very important to use and not the amount that we can see in the blockchain.

Sure someone might see how much you have, but still, if you practice safety hygiene, those following you are just going to be envy on how much Bitcoin you have. So it boils down on you, and how knowledgeable you are in terms of seed phrase.

[Leon Zimmer]

For the first time ever I am starting to think about the crypto wallet that Nakamoto decided to store his Bitcoin in, if he can keep it this long then he did it right unlike many of us who have decided to start trusting hardware wallets more.

Satoshi coins have never been spent. However this is survivorship bias, as it says nothing about whether/how those keys are stored, or even if there is a backup. If Satoshi lost those keys it would also look like unspent coins from the outside.

We would not recommend copying what Satoshi did in 2009. There was no seed back then, instead you would have backed up the wallet.dat which contained randomly generated keys. That backup would be outdated as soon as the wallet replenished that set of keys. With a seed, recovering your coins is much easier.

Using a HW wallet does not change who controls the keys, it just ensures the private keys never make it to a machine which is connected to the internet. The recent Coldcard issue shows it is not HW wallets per se, but rather the entropy used to generate the keys that is the weak link.