Have you ever experienced the pain of a lost seed phrase before? Hopefully not.
Many newcomers to bitcoin are turned off by the fact that if you lose your seed phrase, you will lose your bitcoin forever. It doesn’t sound like the most logical system at a first glance, since there are so many unforeseen circumstances where someone could accidentally lose their seed phrase.
What newcomers fail to understand is that this reality is indicative of the freedom that bitcoin offers to people. By truly becoming your own bank, you have a responsibility to custody of your own money. Furthermore, countless developers around the world are creating Bitcoin custody solutions that maximize the flexibility customers can have with other custodians, allowing them to decide how much personal control they want.
Prior to bitcoin, people were forced to leave their wealth in the hands of another person. Today, however, we have a choice over our money.
And that choice should not be taken lightly. Taking self custody of your bitcoin carries great responsibility. It is a unique privilege to be able to own the world’s hardest money in today’s world, so don’t squander it by losing your seed phrase to a silly mistake or some bad actor.
Let’s take a look at all the possible ways that you could lose your seed phrase, and what you can do to prevent it from happening.
How Bitcoiners Typically Lose Their Seed Phrase
1. Only Writing It On Paper. And nothing more. While technically effective, you have to take extra care to ensure that the paper isn’t destroyed, waterlogged, burned, or caught in the wind while traveling with your windows down on the highway. There are tons of ways that improper management of your paper seed phrase storage could go wrong. If you have to write your seed phrase on paper, use a pencil, not a pen. The pen ink can fade overtime, whereas pencil graphite won’t.
2. Miswriting. When you have to copy down 12 or 24 words, it’s all too easy to simply copy down one of the words wrong or out of order. Be sure that you’re paying attention to the numbered order of your seed words. If you never paid attention to the order and wrote the words down as you saw them when they were generated, or simply wrote the wrong word down, that may come back to bite you.
3. Relying On Memory. There are some bitcoiners who may not like the idea of having a physical copy of their private keys at all. But choosing to rely on memory alone is a very bad idea for long-term Bitcoin storage. It can work in a pinch if you need to move some bitcoin through an airport and don’t want to risk exposing your seed phrase there, but there are plenty of studies to show why we can’t rely on our long-term memory for things like seed phrases.
4. Entering it in the wrong place. Under no circumstances should you ever enter your seed phrase into any sort of program or online platform. Your hardware device is the only device that you should ever input your seed phrase. Many hardware wallet providers offer device management software that you can input your seed phrase into to enable, however, you have to trust the company or verify the open-source code yourself to ensure that it’s safe to do so.
5. Storing It Online. Storing your seed phrase online is a surefire way to lose it to cyberattacks. By keeping it on an internet-connected device, you risk your seed phrase to all kinds of phishing emails, scam links, and other inconspicuous ways that people use to steal your seed phrase.
6. Storing It On A Device. Even if your computer isn’t connected to the internet, keeping a seed phrase on a computer or mobile device is dangerous, since a number of things could happen to the device that prevents you from accessing it. If the device is destroyed, the components get damaged, it gets waterlogged, or stolen by a thief, all of these will result in you losing your seed phrase.
7. Moving/Relocating. If you’re moving from point A to point B, and have to take your seed phrase with you, there’s a lot that can go wrong that may put your seed phrase at risk, such as a car crash, surprise airport searches, and more. Whenever you’re moving a seed phrase, you must be prepared for the risk that it comes with.
8. Overcomplexity. Generating a seed phrase yourself offers more flexibility, however, you can easily make mistakes and generate too little entropy, mix up your passphrases, or make other adjustments to your setup that end up locking yourself out of your bitcoin. More complex Bitcoin custody configurations are sometimes necessary, but for the vast majority of people, you’re better off skipping the nuances.
9. Natural Disasters. If you leave your seed phrase on a material that a hurricane or tsunami could easily destroy, then you can’t truly say that you’re storing your bitcoin risk-free. If you live on the coast, your seed phrase absolutely needs to be stamped into metal, no exceptions. How can you know that your seed phrase is safe in the event your house burns down? Consider all of these off-chance scenarios based on your own environment. A metal seed phrase plate can protect against most of these disaster scenarios, but you still need to ensure that after the damage is done, you’re still able to access that seed phrase plate, wherever you stored it.
10. Sharing With The Wrong People. You may think that you could trust your family members to keep your seed phrase safe, but are they even aware of the implications of holding onto a seed phrase? You have to be very careful to vet whoever you will entrust your seed phrase with so that they understand all of these risks presented here as well.
Redditors Who Lost Their Seed Phrase
Rather than learning the hard way yourself, let’s take a look at some of the mistakes that others have made that led to them losing their seed phrase.
Exhibit A: Forgetting additional singing requirements
When you generate your seed phrase on a typical hardware wallet, along with it comes a PIN number that you use to unlock the device that it’s stored on. Typically, for security, hardware wallets will only give you a limited number of attempts to enter it before locking up the device.
If you lost your seed phrase but still have access to your hardware device, you can still use the PIN to transfer the funds to a fresh Bitcoin wallet with a new seed phrase. However, if you’re like the Redditor above, and also failed to keep a copy of the additional PIN, then without the seed phrase, there is no way to access or recover the bitcoin. It’s best to consider it a generous donation to the network at that point.
The Lesson: Always be sure that you have fail safes in place to prevent you from losing additional signing requirements like PIN codes or passphrases that you may choose to include in your setup. Write down your additional credentials too when you create your seed phrase, or in the case of passphrases, create a separate backup that you can use in case of memory failure.
Exhibit B: Lost in transmission
It’s important that you’re highly aware of your seed phrase’s location at all times. Especially in moments when you’re moving from place to place, whether it be to a new house or overseas, you need to be on high alert for your bitcoin. When you’re transferring your bitcoin’s seed phrase, you’re essentially acting as the armored truck carrying gold bars.
The Lesson: As mentioned in the intro, recognize the responsibility that comes with being your own bank. Bitcoin is a groundbreaking discovery that none of us have a full understanding of yet. What does it mean to be your own bank? Taking self custody today comes with many responsibilities that you’ll have to learn as adoption progresses. Many in the early days were never even thinking about UTXO consolidation. Now, it’s a necessity for anyone who may have been withdrawing too small of transactions from exchanges to cold storage over the years.
Exhibit C: Re-introducing trusted third parties
So, besides the obvious issue that this user was holding an altcoin on a hardware wallet instead of bitcoin, the same principles of safe seed phrase storage still apply.
The problem here? The holder entrusted a third party with their keys.
“Well, guess what, when I went to my important docs drawer in our house, ALGO seed phrase wasn’t there. My docs were moved to a new location during a “tidying up” but apparently anything that got thrown out by my fiancé I okayed. Nevertheless, at the current moment I haven’t found the seed phrase…
Moral of the story, think through worst case scenarios when you write down your seed phrase. I probably should’ve foreseen the laptop kickin’ out at some point, and I probably should’ve foreseen my fiancé thinking that piece of paper with 25 words on it being trash.”
The Lesson: Even those you trust the most, whether it be your spouse, family, or someone else, can be a security risk to your bitcoin if you fully entrust them with your seed phrase. If you do need to keep it with someone else for whatever reason though, be sure that they do the work to understand the importance of keeping a seed phrase safe. Consider a collaborative custody setup with your peers to eliminate single points of failure.
Exhibit D: Misplacing during panic
The thing about poor financial incentives is that it can inadvertently cause people to make very poor, hasty decisions. Just look at the outcomes of exchanges like FTX, Mt. Gox, and all the other big offenders in improper CEX management.
When you leave your bitcoin on exchanges, you run the risk of having to go through a situation like this yourself. You quickly move your coins off of an exchange the moment the doubt starts to creep in, but in the process forget about protecting the seed phrase that actually keeps your Bitcoin stack secure.
Just having your bitcoin on a hardware wallet isn’t enough if you don’t know your seed phrase. You may be able to still transfer bitcoin off of the device, but you’ll lose the bitcoin too if you misplace, damage, or have your hardware device stolen from you.
The Lesson: Take the time beforehand to set up your recovery plan.
Don’t Forget About A Recovery Plan
To avoid a lost seed phrase yourself and truly ensure that your bitcoin lasts throughout generations, besides keeping track of your seed phrase while you’re alive, you’re going to need to have a recovery plan in place for when you die and pass your keys on to someone else.
If you disclose the seed phrase location to a trusted loved one prior to your passing, or include it in your will, that can work effectively. However, a safer option would be to set up a collaborative custody plan. By taking advantage of bitcoin’s multisig functionality, you can ensure that you have full control over your bitcoin while you’re alive, while making it easy to transition custody to the other co-signers once you pass.
Final Thoughts
Adopting bitcoin is one of the easiest yet most revolutionary actions you can take in the 21st century, but being your own bank carries a lot more responsibility than you may think.
Hopefully now that you’re aware of the mistakes bitcoiners have made in the past, you’ll be more mindful of your own seed phrase setup in the future. It’s one thing to have missed bitcoin because you never learned about it; It’s another to have some stowed away for the long haul, only to be sidelined from its growth because you accidentally locked yourself out of it.
Take extra security measures like using metal seed phrase plates, future-proof your UTXOs by consolidating them, and continue using other privacy-enhancing tools that keep your identity safe from being targeted. All of these small efforts will go a long way to ensure you can keep your seed phrase safe for generations.
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