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External hard drives are pushed as a backup option and as a convenient way to add more hard drive space. There should be a warning label on the box against using external hard drives for these purposes!
Complete and catastrophic loss of data is very common with external hard drives. Generally, there's no apparent cause. This can happen with either USB and firewire cables. Often the drive will test good and will seemingly work fine again (perhaps requiring a new partition and/or a format).
Also quite common is the failure of the external hard drive's carriage hardware. When this happens -- in order to recover the data -- the external case needs to be disassembled and the EIDE drive removed. Sometimes the data will be available immediately after the drive is installed in a computer using the conventional IDE channels. The usual rules of cabling and jumpers (CS, MASTER, and SLAVE) apply.
Also, external USB drive cases are sold so that a hard drive from a dead laptop can be reused. This is a risky way of recovering data. In any event, if data is recovered, don't continue to use the drive! A hard drive pulled out of an old laptop is operating on borrowed time!
Is there any legitimate use for external hard drives? The only one that I can think of is for the transportation of data. This way, if the external drive has a nervous breakdown the data is still available at the original location.
Anyhow, don't use hard drives for backups! Hard drives lose data for any number of reasons: problems with the power grid, dying power supplies, viruses, and mechanical failure are some of the most common. And if your computer is stolen or lost in a fire or some other disaster, an external hard drive will be lost, too.
For backups, use CDs, DVDs, or tape. When writing a CD or a DVD, make sure that DATA VERIFICATION is enabled. And, after the burning is done, insert the disc and then make certain that the files indeed are on there. Finally, store the disc in a safe place not right next to the computer.
Flash drives are not the same thing as external hard drives, but flash drives can't be trusted, either. As with external hard drives, flash drives are prone to catastrophic data loss -- without any warning. Sometimes the flash drive can be formatted and used again. Sometimes the flash drive itself is kaput. As with external hard drives, flash drives should only be used for data transport.