What happens if you lose your crypto wallet and the measures to recover your cryptocurrencies.
One of the aspects of dealing with digital assets like Bitcoin is that you have to be particularly careful with your private keys and your cryptocurrency wallet. This is because the security mechanism of protecting crypto wallets is what makes it almost impossible to recover them after loss. Recovering the wallet or the coins stored in your wallet is dependent on either of these factors:
Whether you still have the PC or PC drive containing your wallet’s private key.
Whether you backed up your private key or seed phrase.
Do you have the backup to your computer drive?
Whether or not you erased the seed phrase from the computer drive?
The financial freedom that comes with digital currencies also leaves the full responsibility of taking care of our funds into our hands—ever heard of the horrifying story of James Howell, who threw away a hard disk containing over 7,500 Bitcoins back in 2013. That amount might not have cost a fortune back then, but today the value is somewhere around $80 million. This story is among many such stories of Bitcoin's early entrants before much information had been documented about the technology. If you are like Howell and have no hopes of recovering your wallet backup, chances are you are probably stacked up behind your computer, counting what you'd have as Bitcoin skyrockets.
However, there could be some way to help you. Check out the following guidelines on what to do if you lost your crypto wallet.
Did you lose your crypto wallet or your private keys?
Digital wallets could be custodial or non-custodial. Non-custodial wallets give you the responsibility of taking care of your wallet, your private keys, and all security details of your wallet. Custodial wallets are offered mainly by exchanges and OTC crypto portals. Essentially, a custodial wallet does not provide users with access to their wallet's private keys. This means you only have access to the wallet through a username and a password. Custodial wallets usually are online, and the exchange takes the responsibility of protecting your funds, for instance, by draining customer funds into cold storage.
The majority of cryptocurrency holders use non-custodial wallets. These types of wallets could be cold (offline) or hot (online). First, you need to understand your funds are not held inside the wallet. The wallet is only an interface that allows you to see a copy of the blockchain where your funds are held. An interface that allows you to spend your cryptocurrencies. Accessing the blockchain node where your currencies are held requires a private key. When you lose the crypto wallet, you need the backup to your private key to access the wallet once again or import it.
When you lose the device containing your funds, a thief can access and steal your funds, particularly when your device has no password or PIN protection.
Nevertheless, remember you were prompted to take note of your wallet's private key or seed phrase when opening your digital non-custodial wallet. Most people took down the phrase on a notebook, on a google document, or saved it on their computer as a pdf document. Unlike a password or username, there is never a reset of my private key button. If you lost it, the only way is to recover it from a file backup, or your funds are all lost.
However, if you lost your wallet and still have access to your private key - the first step is importing your private key to a backup wallet. More careful people do their private key backup before losing their crypto wallets. But still, you can execute this procedure after losing the wallet, and you have the seed phrase.
How to Import the Recovery Seed Phrase to a Backup Wallet?
Download your preferred backup wallet from the service you trust. Remember, this should be as soon as possible after losing the wallet. Once downloaded and installed, just locate the setting tab on the wallet's interface and find "Import Key/Seedphrase/Wallet’. On the form that follows, enter your recovery phrase and press the ‘Import’ button.
The Import wallet tab might also have the option of uploading your backup file. This option is for crypto holders who saved the key file containing a backup of their seed phrase. If you still have the key file on your computer, press the ‘Upload Key File’ button and finally press the ‘Import’ button when done.
What Happens to the Old Wallet after Reimportation?
Someone might still have access to your old wallet and steal your cash even after reimporting its replacement. You need to swap your wallet's private key into a fresh public address in the newly replaced backup wallet. The procedure to follow is draining your balances from the lost wallet into a brand new public or private address. Ensure you have access to the new address.
If you have not yet lost your wallet, consider activated password access to devices containing your wallet. Laptops, smartphones, and hardware wallets with a copy of the wallet should have a strong password. Some services help you regain your crypto wallet, but they only do so on the premise of an available key file or seed phrase backup. Without the seed phrase, even cryptography experts will do less to save your situation. The thought of losing your cryptocurrency wallet is fearful, but hopefully, people will appreciate the security features attached to your funds on the blockchain.