If the "wallet seed keywords phrase" is all that's needed to restore a hardware Bitcoin wallet, isn't backing that up a nightmare security-wise?

Question

I buy a Trezor. I put all my coins on it. It has me type out the "wallet seed", which is a series of English words in the right order, onto a paper. And maybe I even buy a metallic card thing to fireproof it. And maybe I'll even put it inside my fireproof safe on top of that.

And then somebody steals the paper. Or finds the phrase in the passwords.txt file in my computer.

And now they have my coins.

Reading the manual/intro to hardware wallets, the first thing they tell you is to back up the seed phrase.

But the seed phrase gives you instant and full access to the wallet!

This just makes my head spin. I don't understand how they can give such advice when this completely violates your security. I don't understand the point of having a hardware wallet when you completely bypass the security it gives by "backing it up".

Answer 1

You're misunderstanding the purpose of a hardware wallet. So first, when you transact Bitcoin without a hardware wallet on a computer, there is a concern that any potential malware on the computer you're using will be able to steal the key (and therefore its associated Bitcoins) because the key has to be stored on the computer.

The point of a hardware wallet is to make it so you can safely transact with Bitcoin on a regular computer without compromising the security of your private key by storing it on your computer. Because the private key never touches your computer, any potential malware wouldn't be able to gain access to your Bitcoin. (So, if you store your seed phrase on your computer, you've entirely defeated the purpose of using a hardware wallet... so if that's what you're doing, I would recommend creating a new wallet and moving the coins over if you still want the security of the hardware wallet.)

If your concern is someone stealing your backed up seed phrase, it is your job to separately protect that seed phrase, whether it's by encrypting it, storing it in a secured location, etc. But these would be done with different tools (an encryption tool, a physical safe, etc.)

Answer 2

BIP39 mnemonics accept an optional passphrase to secure your funds. Store your mnemonic only and then you don't have to worry about someone spending just from the words alone. That is of course, assuming you can remember your passphrase, or alternatively store your passphrase by itself somewhere else, maybe a friend or family member you trust.

Answer 3

You're not supposed to store it in a passwords.txt file on your PC. Doing so defeats the purpose of having a hardware wallet.

As for the handwritten copy the mnemonic is there because most people don't get hacked but instead lose coins due to inadequate backups.

Hardware wallets are designed to protect you from online threats i.e. hackers and malware. If you feel you are under threat in the real world then you need to hire security guards.