So, you are thinking about buying your first cryptocurrency – exciting. However, like most new investors, you may not know everything there is to know about how coins and tokens work. One of the biggest concerns you may have is, “what happens to my cryptocurrency if my phone or computer crashes?” “Will I lose my crypto?”
The short answer is no – if you take the right precautions! With that said, it is definitely possible to lose access to your coins and tokens. Read on to learn more.
Where Are Your Coins Stored?
To understand what can happen to your cryptocurrency after your computer crashes, it is important to know where your coins and tokens are stored. A common misconception is that cryptocurrency is stored on your computer. It is not.
When a coin or token is sent to your address, your balance is recorded on a database that is shared and maintained by participants around the world (called nodes). Imagine playing a game with ten people, where everyone keeps a scoresheet. If you lose your scoresheet, the number of points you earned during the game is not lost since everyone also has the same record.
This is an extremely simplified example of what the blockchain does. Your balance is not kept in any single or central location; therefore, the blockchain is decentralized. And this is one of the features that makes the blockchain so secure. In contrast, most financial systems have a single point of failure, making them vulnerable to attacks.
What Happens To Your Coins When Your Computer Crashes?
While the blockchain ensures that your funds are always kept safe, you can most certainly lose your ability to access those funds. Let’s take a look at the game and scoresheet scenario described earlier. Let’s assume the game is played in a private room, which you need a key to enter. If you step out of the room and lose both your scoresheet and your key to the room, then you will no longer be able to access your scores – unless you have a spare key.
Now, let’s go back to cryptocurrencies. When you create a wallet, you are given a private key. This key allows you to access the blockchain so you can use your funds as you see fit. So, if your private key is stored on your hard drive when it crashes, you lose your ability to access the blockchain and also your ability to use your coins. In theory, your coin balance is safe; you just won’t be able to access them, which is virtually the same as losing your funds.
Private keys come in several forms, including wallet files, seed phrases, and QR barcodes. No matter what type of keys you have, always, always, make sure to keep multiple backups of them. This way, if your computer crashes or gets hacked, you can use your private keys to restore your wallet on another device. Best practice is to keep your keys off of your local hard drive in general and store them in a safe offline environment. And, most importantly, never give your keys to anyone! In our next article, we will dive a bit deeper into the different types of private keys and how they can be used to restore a lost wallet.
