One of the most important things about crypto currencies is the often quoted saying "You are your own bank" What this really means of course is you and ONLY you are responsible for your own money.
Now I'm sure we've all secured something with a password, whether it be a document or maybe a zip file, or even an entire hard drive and then weeks or months later we've lost or forgotten the password, resulting in varying amounts of stress depending how important the content was. Sometimes in those situations it is possible to get back the password, sometimes it's possible to eventually figure out the password by trying the different passwords you might use regularly (because most people are guilty if recycling passwords - a very bad habit btw). And sometimes the content you secured is gone for good.
But in those cases you haven't really lost anything life changing, you've just lost some data. But what if that data was not just old photos, or a business contract?
What if that data was in fact more than $10,000 worth of a crypto currency?
Typically when you set up a crypto currency wallet as part of the process it will generates 12 random words to be used as your secure passphrase.
These 12 words are all you need to open the wallet and access your funds and are therefore 12 very important words.
The wallet setup makes you confirm you've saved these 12 words, some even make you confirm by having you type the 12 word passphrase back in to verify you have have the words saved correctly.
Once you've finished setting up that wallet, there is NO method to recover the passphrase if you lose it. So if you don't have a photographic memory and you haven't written down the passphrase and you forget it then you are permanently locked out of your wallet.
This has just happened to someone I follow on Facebook. He's a smart guy, he shares good investing advice for crypto currencies, yet he has managed to lose the passphrase to one of his wallets.
What a nightmare scenario! Knowing that all the stands between you and $10,000 are 12 words that you know you'll never be able to remember.
So what can you do to reduce the risk of this happening to you?
Well one thing you could do is make sure you've saved the list and put copies in multiple locations in case, for example a USB stick or a HD you have the passphrase on becomes corrupt.
Another thing you could do is print out the passphrase and place it in a safe, or a bank safety deposit box.
You might be paranoid about security and choose to encrypt the file or the drive you store your passphrase on.... of course you could then forget the encryption password (and most likely will) and you'll be locked out anyway.
I do something completely different. I keep my passphrases in plain sight but still keep them secure.
This is my method, you can follow the same concept or modify it to suit yourself. The important thing is you have a system you can remember.
So first of all when I create a wallet I am extremely careful to save the random words that I'm given as my passphrase.
Next I go to a website that generates lists of random words, you can find plenty of these by doing a simple google search for "word list generator"
The list below is from http://listofrandomwords.com
My favourite random word generator is - https://www.randomlists.com/random-words. You can tell it to generate 12 words or 500 words, the choice is upto you.
Personally I like to use around 100 words.
The next step is I take the 12 words generated by the wallet and I insert them into the list of random words I created myself.
So I know have a list of 112 words. Here is an example using a smaller sample and no this one does not contain an actual passphrase to one of my wallets.
uttermost alcoholic celery spot rude zephyr ubiquitous beds
pig hideous shock despair snack trial clap service dove
online return raise magic weather delay stable famous labor
rice pudding trucks ultra birds tremble camp flavor adjoining
owe heap wish chemical fairies square nice surprise scandalous
chivalrous cars delicate remarkable attractive team produce
mixed precious chin reason aspiring
I then save this large list (don't forget I use 100 words or more usually) to a Google Docs file and store it in my Google Drive. I also keep backups on my local HD and on a USB stick.
The trick I use is quite simple I have ONE word that acts as my 'Magic Word'
That word is the one that tells me where in the document my passphrase is hidden.
In the example above lets imagine that my 'Magic word' is the word Magic.
So to find my 12 word passphrase hidden in this list of 56 words I just find the word Magic and I know the next 12 words are my passphrase
magic - weather delay stable famous labor rice pudding trucks ultra birds tremble camp
I can save the 100+ words anywhere I want, even giving the file an obvious name like - My Ether Wallet, because only I know the 'Magic' word that locates the passphrase.
Anyone finding the file just find 100+ words and still have no idea what my 12 word passphrase is.
So there you go, a fairly simple, but very effective way to keep your passphrases secure while being able to just keep them in plain sight without the need for extra layers of encryption.
Hope you find the idea useful.