Bitcoin backups
The self-custody of bitcoin is not only an important right, but also a financial responsibility that can scale from pocket money to life savings, and takes practice getting used to.
This guide is a straightforward starting point for simple bitcoin backups, aimed at users of bitcoin products using the base layer.
If you are a designer or developer, make sure you offer guidance to your users so they can secure their bitcoin with an appropriate backup.
What are backups?
When we talk about backups, we mean saving the information needed to restore access to a wallet outside of the application that created the private keys. Often, this will just be the recovery phrase of 12 or 24 words, but can also include other information like a passphrase and derivation path.
The main risks that backups need to protect against are:
- Loss of wallet - you lost the device and application holding the private key
- Remote theft - your backup got discovered online by a bad actor
- Physical damage - your backup got destroyed
- Theft on discovery - your backup got discovered in person by a bad actor
- Catastrophic events - your backup location got destroyed
- Inheritance loss - next-of-kin were unable to access your wallet
Tip
Lightning wallets also need to back up the full channel state history to be restored properly. See Backing up a wallet in the Onboarding chapter to learn more. The guide on this page is only suitable for base layer wallets.
Backup levels, basic to advanced
A basic backup can be done in a few minutes, while more advanced setups can require more time and effort, like the purchase of dedicated material.
Let’s look at some real-life examples of backup methods for single-key wallets and what they protect against.
Recommendation
Levels 0 and 1 are good when getting started, and require very little effort.
Levels 2, 3 or 4 are recommended for storing larger amounts.
Level 0
Encrypted cloud backup
By storing the recovery-phrase in an encrypted online location (not in plain text) and hard to access by anyone other than yourself, you are protected against loss of wallet. This is the absolute minimum you should do and only takes a few minutes.
Do
- Use an encrypted password manager like 1Password, LastPass, iCloud Keychain
- Alternatively, use a wallet application with automatic cloud backup
Don’t
- Screenshot the recovery-phrase and save it in Google Photos, iCloud photos
- Write down the recovery-phrase in plain text on your device, Google Docs etc.
Suitable for
- For small amounts (less than a months salary)
- When you can’t wait to set up a new wallet until you are at home
For more on this user experience, see the daily spending reference design.
Level 1
Single paper backup
By storing the recovery-phrase written down on paper in your own home you have protected against loss of wallet and remote theft.
Do
- Write the recovery-phrase with the words numbered, using permanent ink on card
- Store it in a location where it is unlikely to be found by a bad actor
- Document or tell next-of-kin where the backup can be found
Don’t
- Scribble the recovery-phrase on a scrap of paper using a pencil
- Stick it on the fridge, or other visible locations
Suitable
- For small amounts (less than a month’s salary)
- When you are setting up a new wallet at home
Level 2
Single metal backup
By storing the recovery-phrase on metal in your own home you have protected against loss of wallet, remote theft and physical damage.
The best metal backup solutions are resistant to most physical damage, including fire, acid and high pressure.
Do
- Order a dedicated metal backup product, recommendations can be found here
- Follow the instructions and make sure the phrase is indented, etched, engraved or set properly
- Store it in a location where it is unlikely to be found by a bad actor
- Document or tell next-of-kin where the backup can be found
Don’t
- Skip ordering a dedicated product, invent your own metal backup solution
Suitable for
- Amounts above your monthly salary, but less than half your annual salary
Level 3
Single backup with discovery protection
The previous offline backups have one flaw in common - if discovered by a bad actor, your funds can be stolen.
To protect against this theft on discovery risk, a passphrase can be added to the recovery-phrase. This passphrase is sometimes called an extra word, or the 13th/25th word.
While this level provides more protection, it also adds complexity to your backup setup. For most beginners storing small amounts it might not be worth the effort from the start and can be a later consideration should the funds grow.
Technically, all recovery-phrases have a passphrase. If it’s not set by the user, an empty string (“”) will be used by default. This means that using the recovery-phrase with or without the user-defined passphrase will recover two DIFFERENT wallets.
If a bad actor discovers only the recovery-phrase, they will find an empty wallet. Alternatively, one can deliberately leave a small amount of bitcoin in this wallet as a honey-pot, and monitor it for any withdrawals to know if it has been discovered.
To provide protection against theft on discovery, the passphrase should be stored separate from the recovery-phrase.
Since adding a passphrase will generate a different wallet, it is best to add it when first creating the wallet, and before storing any bitcoin in its addresses.
It’s worth noting that most hardware wallets support passphrases, while most software wallet applications do not.
Do
- Use a secure passphrase, it is case sensitive and can include numbers and special characters
- Have redundant and secure backups of both the recovery-phrase and the passphrase. They are equally important for successful wallet recovery
- Understand you now have two distinct wallets (one each from the recovery-phrase with or without the passphrase). This can be useful to fool a bad actor, or a risk if next-of-kin is unaware of the passphrase
Don’t
- Store the recovery-phrase and passphrase together
- Forget to document your setup for next-of-kin
Suitable for
- Large amounts
- Situations where the backup can be discovered by bad actors
Alternatives
Set up a hardware wallet from the recovery and passphrase that uses a PIN to protect usage. The PIN now becomes the protection against theft on discovery and should be saved somewhere safe, just like the passphrase.
Another alternative is to split the recovery phrase into several parts and store them separately, often called Shamir’s Secret Sharing or sharding. However, this is not recommended as it introduces more fragility by multiplying the potential failure points.
Level 4
Multiple backups with discovery protection
One remaining flaw with the single offline backup levels is that severe damage to the one location where they are stored could lead to the backup not being usable. This could be a fire, flood, earthquake or similar, all more or less likely depending on where you live.
To protect against such a catastrophic event we can create multiple backups and distribute them to other locations. This could be a second home, trusted family and friends or a safe deposit box.
As the risk of discovery increases with the multiplying backups, it’s best to maintain the protection against theft on discovery with a passphrase or hardware wallets with a PIN.
Do
- Make sure you have redundant copies of all parts of the backup in several locations
- Document your setup well for next-of-kin now that complexity has increased
Don’t
- Forget to safely store the passphrases or PINs
Suitable for
- Large amounts
- In locations where catastrophic events are common or likely to cause severe damage
Inheritance instructions
For any backup setup, sufficient information and understandable instructions for recovering the wallet should be available to next-of-kin.
Even though it might feel uncomfortable (or unnecessary if you are young and single), it is never too early to document your wallets. If you don’t, there is a very high chance that next-of-kin will not be able to inherit your funds.
At a minimum, document each wallet with a given name (Bob’s bitcoin wallet 1), how to recover it, when it was created and what application was used to create the wallet. Ideally, this document has all the instructions required to recover the wallet, but not the information itself (recovery-phrase, passphrase etc.), as that might expose you to theft on discovery risks.
Do
- Make next-of-kin aware of the existence of any wallets
- Explain clearly how to recover the setup, and how to access the required information
Don’t
- Forget to ensure that required information is also stored in locations your next-of-kin can access even if you are not around anymore
Suitable for
- Any amount
Next, let’s look at how coin selection works.