One of the biggest benefits of crypto is that it empowers people to be their own bank. Instead of relying on a third party to secure funds, crypto users just have to keep their private keys safe to maintain control over their money.
A private key is a sophisticated cryptographic tool designed to prevent unauthorized access to funds. A crypto holder uses a public address to receive and send digital currency. But they are unable to withdraw funds without entering the correct private key.
As a result, hackers and thieves often work hard to discover private keys so they can siphon off money. If a thief gets access to a private key, they can figure out the linked public key and control the account.
A group at the Independent Security Evaluators security consultancy wrote a paper published in 2018 explaining how a single Ethereum account managed to steal 45,000 ether by successfully guessing the private key to specific wallets.
Consultant Adrian Bednarek and his colleagues inadvertently discovered many crypto users had easily guessable private keys after research – finding the thief also came to the same conclusion beforehand.
Thefts like these underscore the importance of practicing good security with private keys.
Why Holding Your Own Private Keys Is Vitally Important
Many presume they are safe when they leave cryptocurrencies on an exchange. However, any coins on these platforms are technically ‘owned’ by the exchange itself. They hold the private keys to your account.
Exchanges can also limit withdrawal amounts or tack on extra fees, meaning crypto users holding on an exchange do not have full control over their money.
Users of the Canadian QuadrigaCX exchange were in for a shock when the 30-year founder, Gerard Cotten, allegedly passed away in 2018. News then revealed Cotten was the only person who could access about $190 million dollar’s worth of exchange user funds. He ran the exchange’s finances from a password protected laptop alongside a USB key only he had access to.
Speculation remains if Cotten actually passed away or merely secretly escaped with the money. A report from the Ontario Securities Commission says Cotten began to run a Ponzi scheme to cover for a shortfall in assets in order to satisfy client withdrawals.
As evidenced by the QuadrigaCX saga, if a crypto user does not personally own their private keys, they do not own their digital assets.
The Best Tools To Keep Private Keys Safe
One of the easiest ways to maintain control over private keys is to choose the right cryptocurrency wallet. Coin.space’s universal crypto wallet has private keys created and stored directly on the device, meaning a third-party or other central authority never knows the information.
The wallet features a unified address so a user can rely on the same public address to send and receive crypto or participate in ICOs and airdrops. Coin.space enforces a BIP 39 passphrase encryption on wallet creation, relies on AES-256 encryption for the wallet itself, and asks users to set up a four-digit pin to log into the wallet.
Another way to keep private keys safe is to print out a paper wallet. While a paper wallet does protect against cyberattacks, a crypto holder has to determine how to best secure the physical paper. For those who write out the private key by hand, even the slightest transcription error can result in not being able to access funds.
Others choose a cold storage option like a hardware wallet. Some manufacturers generate their own private keys and offer ways a crypto holder can recover their money if the physical wallet is lost and stolen.
Many hardware wallet manufacturers also provide tools for crypto holders to manage their portfolios and even buy and sell cryptocurrencies with the help of the product’s software.
Cold storage is often a better choice than using a ‘hot wallet’ connected to the Internet. Anything that’s connected runs a higher risk of being hacked or maliciously altered with.
The Importance Of Proper Private Key Protection
The private key is an essential part of the cryptocurrency world. Keeping it out of the hands of prying eyes is vital for those who want to ensure digital assets stay safe.
A private key functions as a crypto holder’s ‘digital signature’ to confirm transactions or make a new public key. All crypto holders should invest in a proper crypto wallet that lets them maintain control over their private keys, and their funds.