Safely storing your ADA in Daedalus
More and more exchanges are updating their backend to support the latest Cardano upgrade and allow their users to transfer their ADA off the exchange. In order to stake their coins ADA holders need to move their coins from the exchanges and into their own wallets. While holding your coins on exchange isn’t a good idea anyways, as hacks and exchange exit scams in the past have shown, many people still see this as a valid option and a crazy huge amount of ADA is stored there. We will not deep dive into the fundamentals of privacy and security in this article, but if you are looking for that Charles Hoskinson recently covered this extensively in the video below:
For the average user that is simply far too technical and most likely you wont follow these principals anyways. So we are trying to break this down into the most relevant pieces to give you, what we think is a proper balance and much more suitable for the average user.
Daedalus
As you probably know Daedalus is the full node wallet developed by IOHK and the official wallet by the creators of Cardano. The term “full node” wallet means you are storing a complete copy of the blockchain which will initially take some time to download after you first downloaded the program, but on the other hand doesn’t rely on any external sources to validate the integrity of the chain. So it’s the most secure software solution to store and interact with your coins. Download it only from the official website to make sure you get the correct file:
Daedalus secures your funds by two mechanisms:
- The recovery phrase or “mnemonic”
- A spending password
After downloading and installing the software you will be asked to either create a new wallet or recover and existing one. Assuming this is the first time you move your coins off an exchange you will want to create a new one by clicking on the “Wallet” tab choose “Add wallet” and choose “Create”
You will be prompted to choose a name and spending password for the new wallet. Let’s call this “HRMS Test Wallet” for the purpose of this tutorial and choose a strong password.
Daedalus will require you to choose at least a 10 character long password and notify you once it’s strong enough. Use lower- and uppercase letters combined with numbers and special characters to make it safe. The spending password, as the name indicates, will let you transfer you ADA to a different wallet. So it’s obviously crucial to set a strong one here!
Next click “Create Shelley wallet” to progress to the next step. A nag screen will give you the info that the next step will be the creation of the “Recovery phrase” aka “mnemonic” or “seed phrase”. This is a combination of 24 randomly created words as described in the BIP32 standard. This phrase will let you recover the wallet and all its funds on any given wallet. So this is the MOST IMPORTANT element to backup. Simply spoken, if somebody gets access to your recovery phrase yours funds are lost and there is nothing you can do against it!
There are several ways to backup the seed phrase which we will introduce to you a bit later but there are more important a few no-go variants to store them.
Do Not:
- Make a screenshot
- Store them in a document on your computer
- Upload them to a shared drive (e.g. Google drive or similar)
- Send them to yourself or anybody else by e-mail
- Print them on a public printer or use a public copy machine
- etc…
There are two core principals about how to store them:
- Store them OFFLINE ONLY
- Have at least 2 offline backups in different geographical locations
Possible backups for you recovery phrase
There are several ways to safely backup these words, both commercial and traditional ones which we will cover below:
- A hand written note
- Use a steel wallet like Billfodl or Cryptosteel
Hand written paper note
The advantage of a hand written note are obvious. It’s basically free to create and the most obvious and quickest solution. The downside of this method is that the note might become corrupt over time:
- The ink is less readable
- The note is destroyed by e.g. a fire or other natural desasters
Both of these scenarios can be prevented by having at least one duplicate in a different geographical location. You might also want to laminate the pieces of paper to make them more resistant to humidity.
Steel wallet
Instead of using pen and paper there are commercial solutions like the ones mentioned below that let you use sheets of metal or single letters made of metal to create a backup of your recovery phrase. The advantage is that those are resistant to influence factors like fire or water. On the downside they cost around 100$ each, making a redundant backup cost you around 200$. Given the fact that you are storing serious amounts of money that’s well spent money though!
Cryptosteel:
Cryptotag:
These are just two options of steel wallets, but there are more manufacturers, of course. Just google “Crypto steel wallet” and make sure you order from trustful sources only!
Again store those backups in different geographical locations for full redundancy!
What’s next
At this point you have a running Daedalus wallet on your computer, delegated to a stakepool if you want, and the recovery phrase safely stored as per instructions above, which is great! Assuming you are fine with the stakepool you have chosen and don’t want to spend your ADA anytime soon you can SAFELY DELETE the wallet within Daedalus, or Daedalus completely, now. It’s important to understand that both your funds and your delegation decision are stored on the blockchain and NOT in the wallet. The wallet is simply a interface to access the funds on the blockchain. So even if you delete Daedalus now your funds and your delegation decision will remain untouched and you will keep receiving staking rewards and can still receive transaction from other people on your address.
Top delete the wallet simply open it in Daedalus and choose “More” -> “Settings”
On the bottom of the page there is the “Delete wallet” option.
When ever you want to access your funds, change your delegation, send them to an exchange etc you can simply reinstall Daedalus, click “restore”, enter your recovery phrase and your funds will instantly be there! So there is no need to keep Daedalus installed on your computer! That’s the beauty of the blockchain. To restore your funds in Daedalus follow the steps below:
After recovering entering your recovery phrase you are asked to enter a name and spending password for the wallet. The name can be chosen freely as well as the spending password so this doesn’t have to be the same as when you first created it. That’s why we didn’t store our spending password in the same elaborated way as the recovery phrase!
As long as you choose to keep the wallet in Daedalus the same practices apply for the spending password as for the recovery phrase, of course:
Do Not:
- Store them in a document on your computer
- Upload them to a shared drive (e.g. Google drive or similar)
- Send them to yourself or anybody else by e-mail
- Print them on a public printer or use a public copy machine
Conclusion
With your funds sent to Daedalus and your recovery phrase safely stored as described above you have gone a massive step towards safe handling of your ADA and magnitudes more safe than storing them on an exchange!
Congratulations!
Please let us know if anything is unclear or you are missing a specific detail!
If you found this article helpful please consider delegating to our stakepool #HRMS and #HRMS2 to support the creation of these kind of content in the future!
Thanks Wunderbaer
