Although cryptocurrencies give their users the freedom to transfer funds on a peer-to-peer basis, this is not without its potential problems. In most cases, the loss of access to your funds means the loss of the funds themselves. The key aspect that you have to take care of to avoid such a situation is the private key of your crypto wallet. In this guide, we are going to take a closer look at what private keys are and give some advice on how you can improve their protection.
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A private key is a core element of both symmetric and asymmetric types of cryptography. Don’t let the word “key” confuse you, though. The key itself is just a code that is used to scramble and unscramble the coded information, which is very important to provide the security of your data. Its role is even more important when applied to cryptocurrencies.
The difference between these two ways of encrypting data is as follows:
- Symmetric encryption. In the case of symmetric encryption, the private key both encrypts and decrypts the information, and that is why it should be shared only with that party to whom this information is relevant. If it falls into the hands of unauthorized parties, the information won’t be secret anymore.
- Asymmetric encryption. Asymmetric encryption (also called public-key cryptography) is more sophisticated. It utilized two types of keys, public and private. They are used only in pairs, as one cannot ensure access to data without its match. In contrast to the private key, the public key can be freely distributed and is available to any participant of the system. The data is encrypted by the public key and decrypted by the private key that still must be kept secret from others.
Now, what does it all have to do with cryptocurrencies? The security of cryptocurrency wallet security is built on the principle of public and private keys, which combine to offer a method of encryption that doesn’t compromise confidentiality and the security of transactions.
The public key represents a user’s address. It is known to any person who wants to send funds to the wallet’s owner, who needs the private key to access them. That is why it is so important to ensure that the private key is reliably protected. How it is protected depends largely on the wallet type.
How Is Cryptocurrency Stored?
When it comes to storing your digital funds in a secure way, there are two basic types of wallets to choose from: hot (online) and cold (offline) wallets. Hot wallets require an internet connection, which can make them potentially prone to hacking attacks. The main security problem with hot wallets is that the private keys are stored by a third party and can be accessed via the Internet. That is why, despite strenuous security measures being implemented, there is always a risk assets can be hacked when using a hot wallet.
Cold wallets, on the contrary, are physical devices that don’t require an internet connection. Your funds will be always offline, which makes them much more secure compared to their hot alternatives. They are immune to hackers or computer viruses, and the private key is effectively protected by being generated and kept in an offline environment, away from the internet. From a private key safety perspective, cold wallets are a better solution.
Why Should You Backup a Private Key?
When applied to cryptocurrencies that are controlled only by their owners (as opposed to being controlled by a third party on hot wallets), private keys play a crucial part in ensuring the safety of your assets. On the other hand, once lost, the private key cannot be recovered, making it impossible to withdraw the funds from the wallet.
It is important not to underestimate the importance of backing up your private keys, as one can never know when something goes wrong in relation to the device where your wallet is installed. Your desktop, laptop, smartphone, or even hard wallet device can be lost, damaged, destroyed, or stolen. This is why you should ensure to backup your private key in advance. The good news is though, as long as the right measures are taken, you’ll still be able to restore your wallet on any device and your funds will not be locked away forever. Let’s review some basic ways of how this can be done.
How to Back Up Your Private Keys
Note that there are many different types of wallets, with various types of interfaces, which can complicate matters. You may try to find a backup option in the wallet settings yourself or search instructions in their online help section. On the whole, backups come in three basic forms:
- A seed phrase that is a 9-24 word-long phrase of regular words
- Wallet file backup
- The private key itself, which will be a long alphanumeric string
The kind of backup a wallet generates depends on the type of wallet that you use. For example, Trezor and Ledger, the most popular hardware wallets, generate private and public keys via BIP39 mnemonic phrases of 24 words as a seed.
Once the backup is created, the next step is to decide how to store it. There are a few options of how this can be done:
- Physical device. The backup can be kept on a flash drive or a larger hard drive, preferably encrypted, that can be easily taken to any place by its owner. The main advantage of this method is that the data will be kept fully secure, but it requires some skills to handle recording and encrypting the data.
- A piece of paper. It is possible to print a seed phrase and even a private key itself on a single piece of paper. Obviously, this method will cost you next to nothing. However, remember that paper is not a durable medium, as it may be torn, lost, or get dirty. You may just accidentally spill water on it. To make it more long-life you need to laminate it and keep it in a safer place.
- Stainless steel. Stainless steel cryptocurrency backup devices may have different forms and shapes. It can be a plain metal plate with an engraving pencil like the Crypto Key Stack. The Simbit is designed as a slider, while the Cryptosteel Capsule is a steel cylinder wallet. It is possible to buy a stainless steel wallet in the form of a wheel or even ordinary keys. All these devices are fire, water, and corrosion-resistant.
- Trusted person. All the methods mentioned above are good as long as you are well. However, what to do in the case of an emergency? Where could somebody find your private keys? Therefore, you should consider sharing these details with someone you can trust. This method can however also have drawbacks. It should only be shared with somebody you can trust at all costs.
- Unconventional modes. The backup storage can be turned into the expression of your personality. For example, art lovers have a chance to store their Bitcoins and at the same time enjoy their pieces of art. Cryptoart offers collection items with a QR code of a Bitcoin public address on the front and private keys on the back under a secure sticker. The storage methods like this, however, are still at an early stage.
- All these methods are acceptable for making your backups. It may come down to personal preference. However, there are some things with private key backups that shouldn’t be done under any circumstances.
What NOT to Do With Your Private Key Backups
- The point of making a backup is that you won’t store it in the same place as the original. Don’t even hold it near the device with access to your wallet. For example, never put a flash drive with your private key into the laptop case. If it is stolen, your private key will be stolen with it.
- Never store your backups online, send them by email or in SMS, photo or take a screenshot of them. Forget about Google Docs, or Notes app, or indeed anything that is not encrypted.
- Never do backups and view your private keys with other people or in public places (transport, cafe, etc.). You’d better do it alone at home, and make sure that nobody is watching you. Switch off any remote-sharing programs on your device. No, it’s not paranoia, these are the basic security measures that must be taken to protect your crypto assets. Don’t neglect them.
- Never share your private key or seed phrase with any customer support staff. This is a well-known fraud scheme when someone says they work for a company but they don’t really. Scammers may pretend to be the representatives of any wallet customer support via a fake phone number or email. Remember that official customer support will never ask you to reveal your private keys or a seed phrase. If someone does so, contact your wallet provider and report the incident immediately.
- The same is also true for scam or blackmail messages many of us receive by email from time to time. Don’t believe them, even if your username and password to various services are mentioned there — they are taken from database leaks. Never share your private key with the scammers despite their threats.
A Few Tips on How to Create a Safe Environment for Your Private Keys
Managing cryptocurrencies isn’t easy, but you can take some steps from the very beginning to protect the private key from many dangers:
- Start with your wallet, buy or download authentic pieces to avoid a faulty one. If you buy a cold wallet, do this from the company directly or select a trusted reseller. Otherwise, your device may be tempered.
- If you download a hot wallet, make sure that your desktop or smartphone is malware-free. Use only authentic versions from a direct source.
- Don’t buy a used hardware wallet or receive it as a gift. You may save a few dollars, but there is always a possibility that this device has already been hacked.
- Never use any wallet set up by other people, no matter how close they are to you. It doesn’t mean that you should suspect every person around you and even the members of your family, but better safe than sorry. You can’t be too careful.
- It is recommended that you make at least a few copies of your private key backup and put them in separate physical locations. In case you lose or damage one copy, another one will help you to restore access to your wallet.
- Never share the info on your private keys on social media. The common fraud scheme is to offer airdrops in some groups and channels. To participate in the event you will be asked to enter some personal data including your private key. This is a common and old trick, but it remains popular because it still works in some instances, despite its simplicity.
Common sense is paramount for the safety of your cryptocurrency. Your private keys are completely your responsibility. Cryptocurrencies don’t provide a helpline to call — remember, you are essentially your own bank.
The Bottom Line
Taking care of your crypto funds’ security may seem complicated. But once you get a hold of all the principles that can help you avoid the loss of your funds, you will go on to fully appreciate the benefits of cryptocurrency, as well as the benefits of keeping them safe.
So, with the new found knowledge in crypto, why not sign up to Bybit?