Wallets: Restoring

Restoring

What is a wallet backup?

The most important element to adding security to your cryptocurrency wallet is creating an option to restore a lost or hacked wallet with a backup. Without a wallet backup, a lost private key will almost always result in the loss of its held cryptocurrency.

While there is no way of knowing for sure, estimates have suggested anywhere up to 60 percent of Bitcoins in circulation have never been spent. However, most of these coins are likely still accessible to their owners.

3.5 million

Other estimates believe there could be around 3.5 million Bitcoins lost to the system, thanks to their owners losing their private keys. 

All cryptocurrency coins ever mined are sitting on the blockchain on their owners’ addresses, so they are never actually lost.

What makes them lost is them becoming inaccessible with the loss of the private keys, which allowed their owners to access and transfer those coins.

Regularly generating backup copies of a wallet protects against broken, stolen or compromised software, as well as human errors. It is also important to use different mediums and methods to store your backups.

As there are several different wallet options, so too are there opportunities to diversify a wallet’s access points.
This diminishes the threat of theft, misplacement or failures.

Wallet backups can be produced using several different techniques designed for a wallet holder’s specifications. Online or hot wallet holders will often encrypt their backup files, or produce a seed phrase as an alternative mode of access.

Wallets: Restoring

What is the role of a backup encryption?

Offline wallet holders can also use those same backup options, but also have the added advantage of storing multiple keys in cold wallets away from online hackers. One of the greatest threats of losing the contents of a cryptocurrency wallet is the vulnerability or threat coming with having your wallet connected to the internet.

Encrypting backups stored online can help protect against online attacks and works simply by adding another layer of security through password requirements when withdrawing funds.

While encrypting provides solid resistance against theft, the threat of malicious online attacks means offline backup diversification measures are vital. A cold wallet is an offline wallet (opposed to a hot wallet, which is stored online), and the best course of action against this.

An offline wallet is achieved using paper wallets and hardware and requires storing wallet data physically or on a device without an internet connection.

Backing up a cryptocurrency wallet usually involves making copies of the wallet’s contents, saving them in different secure locations and safeguarding the information against theft with special passwords and encryptions.

What are other popular backup methods?

The wallet.dat method is common and involves creating a digital file back up with copies of private and public keys, addresses, transaction records and other data.

It is important to either make multiple copies of these backup files, or make sure the information is stored on a private device without public or outside access.
These files can also be stored on clouds or devices with internet access, but it is recommended they be encrypted first.

If there is a problem with accessing a wallet, whether it be caused by a programming issue on a software wallet or a lost hardware wallet, restoring the wallet.dat backup file should retrieve the lost contents. Restoring is generally the case of copying and pasting the data into the cryptocurrency wallet.

BIP39 is a random word generator, or a seed SeedA backup system designed to enable wallet holders to retrieve the public keys, or wallet IDs if they are lost. Usually coming in the form of a random combination of words and kept hidden in a safe and secure place. phase producing a master key for accessing backup wallet information.

These also come in the form of HD Wallets.

HD WalletsHD WalletsHD wallets eliminate the need for the user to constantly generate and wait for the secure keys to be generated, so they only need to worry about taking the backup.

If a wallet’s information is lost, the user simply enters the randomly generated sequence of words to restore the information.

Most wallets on the cryptocurrency market make use of this backup program, and they recommend storing the phase physically, rather than digitally.

Users are usually instructed to write the phase out on a piece of paper and store it in a safe and secure location to avoid having the key stolen and risk losing the contents of the connected wallet.

How do you retrieve coins without a backup?

But while a lost password generally means lost cryptocurrency, there are processes that can be followed as a last-ditch effort to restore access. Some service providers are attempting to fill a hole in the market recovering lost cryptocurrency wallet passwords using new digital technologies.

But while there is a market for these services, very few can actually provide any sort of help not already available to the lost cryptocurrency’s owner.

It is next to impossible to generate the correct encryption matching a private key, and anything short of that will not retrieve inaccessible cryptocurrency. These companies are more likely to scrape a computer hard drive or go through the contents of a mobile device to find any traces of private key encryptions and seed phases.

The most proactive form of password retrieval remains the same - have copies saved and keep information in safe and secure locations.

FAQ

How much cryptocurrency has been lost?
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There is no way of knowing how much cryptocurrency has been lost. But estimates regarding lost Bitcoin in particular suggest there could be around 3.5 million Bitcoins lost to the system, thanks to their owners losing their private keys.

What does it mean when cryptocurrency has been 'lost'?
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All cryptocurrency coins ever mined are sitting on the blockchain on their owners’ addresses, so they are never actually lost. What makes them lost is them becoming inaccessible with the loss of the private keys, which allowed their owners to access and transfer those coins.

Why are wallet backups important?
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Regularly generating backup copies of a wallet protects against broken, stolen or compromised software, as well as human errors. It is also important to use different mediums and methods to store your backups.

How can I backup a wallet?
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All cryptocurrency coins ever mined are sitting on the blockchain on their owners’ addresses, so they are never actually lost. What makes them lost is them becoming inaccessible with the loss of the private keys, which allowed their owners to access and transfer those coins.

Can I restore lost cryptocurrency without a backup?
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A lost password generally means lost cryptocurrency, but there are processes that can be followed as a last-ditch effort to restore access.
Some service providers try to recover lost cryptocurrency wallet passwords using new digital technologies, but are often problematic. 

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