Hardware cryptocurrency wallets are known for granting usersfull control of their crypto and providing more security, but such wallets are prone to risks such as theft, destruction or loss.
Does that mean that all your Bitcoin (BTC) is lost forever if your hardware wallet is lost, burned or stolen? Not at all.
There are a number of options to restore cryptocurrency for someone who has lost access to their hardware wallet. The only requirement to recover crypto assets, in that case, would be maintaining access to the private keys.
A private key is a cryptographic string of letters and numbers that allows users to access crypto assets as well as to complete transactions and receive crypto.
Most crypto wallets usually provide a private key in the mnemonic form of a recovery phrase, which contains a human-readable backup allowing users to recover private keys. The mnemonic form is typically enabled through BIP39, the most common standard used for generating seed phrases for crypto wallets.
Also referred to as a seed phrase, a BIP39 recovery phrase is basically a password consisting of 12 or 24 random words that are used to recover a cryptocurrency wallet. Crypto wallet platforms typically generate a seed phrase at the very beginning of setting up a wallet, instructing users to write it down on paper.
Not your keys, not your coins
According to executives at major hardware crypto wallet firms Ledger and Trezor, the safety of the recovery phrase is way more important than keeping the hardware wallet safe.
Keeping a private key safe is a guiding principle for the crypto community, embodied in the phrase: “Not your keys, not your coins.” The principle means that users are not really in control of their coins if they don’t own their private keys.
Both Ledger and Trezor wallets allow users to recover access to their wallets through a seed phrase by simply using another hardware wallet.
“A user could recover their wallet and funds on any of the other new Ledger wallets. Alternatively, they could also recover on a Trezor, SafePal or another hardware wallet device,” Ledger chief technology officer Charles Guillemet told Cointelegraph.
Users can also turn to software wallets to access their funds in case the hardware wallet was lost, stolen or destroyed. “If you lost your Trezor, but you still have your recovery seed, you can recover your funds through many hardware wallets and software wallets in the market,” Trezor chief information security officer Jan Andraščík said.
According to the Ledger and Trezor executives, the list of compatible software wallets includes platforms such as Electrum, Exodus, MetaMask, Samourai, Wasabi, Spot and others.
Threats to a backup phrase
As the safety of the recovery phrase is the top priority in maintaining access to a crypto wallet, one may be wondering how to best protect the seed phrase.
“Preserving the seed is one of the most crucial topics in Bitcoin security,” Andraščíktold Cointelegraph. He pointed out three main threats when it comes to BIP39 passwords: those caused by the user themselves, any type of natural or human-made disasters, or theft.
Loss of a recovery phase is very common: A wallet user could accidentally throw it out or just not understand the importance of it at the very beginning of setting up the wallet.
Related: Warning: Smartphone text prediction guesses crypto hodler’s seed phrase
Users could also choose the wrong place to keep their recovery phrase, with one common mistake of simply putting the phrase online. Crypto wallet users should never digitize their seed phrases in order to avoid unfortunate events such as hacking, Ledger’s Guillemet said, adding:
“It is paramount for users to secure the recovery phrase. It should be stored in a safe place and should not be digitized — in other words, don’t put your words in an email or a text file and don’t take photos.”
As such, most crypto wallets recommend their users simply write the seed phrase down on a piece of paper and store it in a safe place.
Tips to protect the recovery phrase
In order to ensure reliable protection for the recovery phrase, one may go further than just writing it down on paper.
Ledger and Trezor executives provide a number of recommendations for crypto wallet users to boost the protection of their seed phrases, including using fire-proof storing capsules or steel plates to engrave the recovery phrase.
Other sophisticated methods to protect a seed phrase also include distributing backups between several groups of people and locations such as family, a safe box at the bank, or a secret spot in the garden. One such method is known as Shamir Backup, allowing users to distribute their private keys into several parts that, together, are needed to recover the wallet.
While hardware wallet providers do their best to help users recover their assets in case they lose their wallets, there’s still nothing much they can do about losing a recovery phrase.
Related: Simple steps to keep your crypto safe
That is because the private key is designed to be held solely by the user of a noncustodial wallet, Trezor’s Andraščík said. He noted that the principle of noncustody and its security implications are completely against the idea of having some kind of “backup,” adding:
“If anyone has an opportunity to recover your Bitcoin, it means they have access to your Bitcoin, and you need to trust that these actors will always treat you with goodwill. We are getting rid of the need to trust, and rather, we encourage them to verify.”
“Ledger is also working to improve the user experience generally, removing the pain points without compromising security. That said, self-custody remains the DNA of blockchain and the DNA of Ledger. Users always remain in control,” Guillemet stated.
FAQs
Did your hardware wallet got lost or stolen or doesn't work for some reason? Don't panic; your crypto is safe, and you can access it if you have your seed words. The same applies if the hardware wallet breaks – if you have the seed phrase, you're ok.
What happens if you lose your crypto hardware wallet? ›
Thanks to how the blockchain works, losing your hardware wallet or accidentally putting it through the washing machine won't affect your holdings. As long as you still have your seed phrase your wallet can be recovered.
What happens if I lose my Trezor? ›
Not to worry, Trezor is designed with this in mind! As long as you have your Trezor's secret recovery phrase in the form of the 12-, 18-, or 24-word phrase, you can restore your funds on a new device.
What happens if I lose my crypto wallet phrases? ›
This means if you lose the recovery phrase you're given upon creating your wallet, you're locked out of your wallet (and any assets stored in it) forever. The company who makes your wallet cannot recover it for you. There is technically no possible way for them to see it, as it's not stored on their servers.
What happens if your Ledger wallet breaks? ›
You don't lose your funds forever. As long as you've backed up your 24-word recovery seed correctly, you can simply purchase a new Ledger hardware wallet and enter your old recovery seed to the new device — giving you back access to your funds.
Can you recover crypto if you lose your hardware wallet? ›
Did your hardware wallet got lost or stolen or doesn't work for some reason? Don't panic; your crypto is safe, and you can access it if you have your seed words. The same applies if the hardware wallet breaks – if you have the seed phrase, you're ok.
Can you recover crypto if you lose your Ledger? ›
As long as you have your recovery phrase, you will always be able to regain access to your crypto assets. You can restore any Ledger device from your recovery phrase to recover the wallet configuration and access your funds. Learn how to restore your Ledger device from your Recovery phrase in this article.
What happens to my crypto if Trezor goes out of business? ›
Though Trezor has its own wallet software, fortunately — if ever Trezor's company — SatoshiLabs, goes bankrupt and goes out of business, you can still use your Trezor hardware wallet to connect to other software wallets such as Electrum(for Bitcoin), or MetaMask(for Ethereum).
What are the disadvantages of hardware wallets? ›
Disadvantages of hardware wallets
Hardware wallets are expensive. - User Experience - The setup process can be quite tedious for newbies. - Accessibility — Hardware wallets are less convenient for day-to-day transactions, as they require you to physically plug them into a device before you can access your crypto.
Does Trezor report to IRS? ›
This said, if you've moved assets from your Trezor wallet to centralized crypto exchanges, many of these exchanges are legally compelled to share data with the IRS and other tax offices - potentially including your Trezor address.
If you no longer have access to your hardware wallet, you can import the recovery seed into another wallet and you will regain access to all of your accounts, balances and transaction data. If your device is damaged and you still have access to it, then there is no risk of the recovery seed being compromised.
How do I recover my crypto wallet? ›
How to restore your wallet from manually inputting a recovery phrase
- When you have downloaded the Bitcoin.com Wallet, tap on the "+" symbol to the right of your bitcoin wallets.
- Now tap on "Import wallet"
- Enter your 12-word recovery phrase and select the coin (BTC, BCH, ETH, AVAX) for the wallet you want to import.
Ledger hardware devices are the only crypto wallets that use Secure Element chip. It protects you and your private keys against the most common physical attack vectors, such as laser attacks, electromagnetic tampering, and power glitches. So no matter who has your device – your private keys cannot be compromised.
Can hardware wallets fail? ›
Hardware cryptocurrency wallets are known for granting users full control of their crypto and providing more security, but such wallets are prone to risks such as theft, destruction or loss.
How much money are lost in crypto wallets? ›
According to the New York Times, an estimated 20% of all Bitcoin currently in circulation (18.5 million at the time of writing) is held in lost wallets. That's part of the reason the remaining Bitcoin has gotten more and more valuable.
Are hardware crypto wallets safe? ›
If your private keys are lost, stolen, or compromised, you may lose access to your cryptocurrency forever, with no way to recover your funds. Hardware wallets provide a secure way to store and manage your private keys, keeping them offline and out of reach of hackers and scammers.
Is crypto actually stored on a hardware wallet? ›
Cryptocurrencies are never stored within the hardware wallet itself, they always live on the blockchain. The hardware wallet merely stores your private key. That private key opens the lock to your address on the blockchain where your assets actually live.
Can a crypto hardware wallet be hacked? ›
Hackers physically interfering with your hardware wallet is another sort of attack. There have also been cases of customers receiving fraudulent hardware wallets. These bogus wallets include malware, allowing attackers to steal private keys and drain your accounts.
What happens if hardware wallet company goes out of business? ›
True security doesn't tie you down
Yet, thanks to the BIP39 protocol, any assets that are secured using a Ledger hardware wallet can also be recovered via any other wallet in case of emergency, or if Ledger goes out of business.
Can I just pull out my Trezor? ›
By simply unplugging your TREZOR from the computer, you will still be able to see your TREZOR Account(s) in the TREZOR Wallet. You will also see changes to your balance if new bitcoins are received, but your funds cannot be moved out of the wallet until you reconnect TREZOR.
Best for Security Trezor Model T
We chose Trezor as best for security because it comes with the strongest security features and track record of any reviewed hardware wallet. Trezor, like Ledger, is a name synonymous with crypto cold wallet storage. Its Model T is the second generation of hardware wallets it's created.
Is hardware wallet safer than Coinbase? ›
The most secure type of storage is cold crypto storage, which is when you store it offline, normally in a hardware wallet. To be fair, Coinbase Wallet is still a great choice in terms of security, and hot wallets tend to be easier to use than cold wallets.
Should I hide my hardware wallet? ›
While not telling the world about your crypto reserve is a great first security step, it doesn't eliminate the risk of someone stumbling upon your hardware wallet by accident and connecting the dots. For the ultimate in safety and peace of mind, you'll need to hide your hardware wallet away from any prying eyes.
Can the IRS see my crypto wallet? ›
Yes, the IRS can track cryptocurrency, including Bitcoin, Ether and a huge variety of other cryptocurrencies. The IRS does this by collecting KYC data from centralized exchanges.
What triggers IRS audit crypto? ›
2. What triggers a crypto audit? Unreported income is one of the most common reasons for the IRS to conduct a crypto audit. Most crypto exchanges send 1099-B or 1099-K forms to clients that exceed certain transaction thresholds, the copies of which are then sent to the IRS.
Does the IRS know your crypto wallet? ›
The IRS can and has requested these records from exchanges. In the past, the IRS has issued John Doe Summons to exchanges like Coinbase and Kraken. In addition, major exchanges issue 1099 forms to customers and to the IRS reporting on your crypto transaction activity.
Can you break a crypto wallet? ›
A hardware cryptocurrency wallet is the most secure way to store your private keys safely. But, because these wallets are physical, they run the risk of being lost, broken, or even stolen.
What are the chances of getting stolen wallet back? ›
The trend showed up in every nation, although the actual numbers varied. Switzerland led the study with a 79 percent return rate for wallets with cash. The United States fell in the middle with a 57 percent return rate, while China had the lowest return rate of all the countries studied, at just 22 percent.
Do people return stolen wallets? ›
A lost wallet can still be returned
More than half of the wallets with money in them were returned. Even more surprisingly, the more money was left in the wallet, the greater the chance it was returned. Wallets with no cash in them had about 40% chance of being returned.
What happens if you lose your seed phrase? ›
If you lose access to your wallet and lose your seed phrase: You will lose access to your crypto assets. Seed phrases can't be changed or recovered, making them an effective security tool.
It is a secure hardware device that stores private transaction keys and other sensitive data. Unlike internet and mobile wallets, a hardware wallet cannot be hacked without physical access to the device, making the money less vulnerable to theft in this method.
Has a Ledger ever been hacked? ›
Ledger is, besides Trezor, one of the most popular hardware wallets for crypto holding and staking. Until today, there are no records of successful hacks on their software, so it's safe to say that Ledger is a great solution for you.
What are the cons for Ledger in crypto? ›
The problem with such wallets is that you need to be connected to the internet if you want to access your assets. However, having access to the internet makes you vulnerable to computer malware. You can give access to hackers unintentionally by clicking a link, opening an email, or any other way.
How do I recover a lost Ledger? ›
Press both simultaneously when Restore from recovery phrase is displayed.
- Connect the Ledger Nano S to your computer using the supplied USB cable. ...
- Press the left or right button to navigate through the on-screen instructions.
- Press both buttons simultaneously to choose the option Restore from recovery phrase.
The Cons of Using a Hardware Wallet
Risk of Loss or Damage: If a hardware wallet is lost or damaged, you could potentially lose access to your cryptocurrency unless you have a backup of your private keys. Easy to Use: Some hardware wallets have complex features that are hard for some users to understand and use.
What happens if you lose your Ledger Live password? ›
If you lost or forgot your Ledger Live password, you can reset your password by resetting Ledger Live. Resetting Ledger Live erases all settings and accounts on your computer. Once you have reset Ledger Live, you can then choose a new password and add your accounts back with your Ledger device.
Can funds be stolen from a Ledger? ›
While we are confident that Ledger devices are designed to withstand all known vectors of attack, scammers are continually finding ways to use social engineering, phishing, and fraud tactics to trick crypto users to separate them from their hard-earned money.
Are hardware wallets hackable? ›
Hackers physically interfering with your hardware wallet is another sort of attack. There have also been cases of customers receiving fraudulent hardware wallets. These bogus wallets include malware, allowing attackers to steal private keys and drain your accounts.
Where to keep hardware wallet safely? ›
A bank vault is much more secure. Not having immediate access to your backup increases your resilience to physical threats; If you have large amounts of cryptocurrencies that you do not need frequent access to, keep your hardware wallet in the bank safe as well.
How long do hardware wallets last? ›
Hardware crypto wallets are flash drives, so they will have a similar lifespan of about 10 to 30 years. Software wallets are purely software-based, so their lifespan will depend on how long their software will be supported.
Those interested in the safest storage should consider using a non-custodial cold hardware wallet for all of their long-term bitcoin and cryptocurrency storage. Only keep what you plan to use in your hot wallet. Once you're done with your transaction, move your crypto back to cold storage.
