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Safeguarding Private Keys, Why It’s Important

| November 17, 2023

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Cryptocurrency  is the rising asset class that everyone wants to own for various purposes – like the profits it can generate and the decentralized utopia it promises to bring. The technical knowledge required to use them, however, can be overwhelming for most especially when it leads to blunders like theft. A technical comprehension of their workings must be grasped by users so they can protect their digital coins and tokens from being taken away by nefarious means. The massive risk of having assets stolen is something that comes with investing in this segment of finance. DeFi, NFTs, and the other ingenious applications of cryptocurrency are netting users great dividends – but do all those gains matter if the assets you own can be snatched away in an instant? Of course, not, which is why securing crypto assets is a top priority for all owners. The security of cryptocurrency depends on one major component – the private keys. In fact, private keys are what state the ownership of cryptocurrency and offer access to the assets. It, therefore, becomes very important to safeguard private keys to prevent your funds from reaching the wrong hands.

The Importance of Safeguarding Private Keys

Private keys are cryptographic hashes that link user wallets to the assets they own on the blockchain. While public keys act as landing addresses for transactional funds, private keys are secret password-like hashes consisting of alphanumeric characters that are required to initiate outbound transactions from the wallet. The transactions are digitally signed by the private keys allowing the blockchain network to confirm the legitimacy of the transaction. Obviously, the funds linked to your wallet are as safe as the private keys, which possess the ability to send funds to other wallets. If a cybercriminal came across a user’s private key, they would be able to transfer all the funds from the user’s wallet to their own. Private keys need to be safeguarded at every instant and there are many ways to do so, ignoring which opens opportunities for users to lose their crypto assets to thefts, hacks, and even weather elements.

How To Safeguard Your Private Keys?

Private key security is needed for all users. Most means of securing private keys require users to have some technical knowledge about how they work before using them, without which access to the keys can be lost forever, leaving the funds trapped in storage forever.

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Storing Private Keys in Robust Offline Environments

Cryptocurrency wallets are software and hardware solutions that store private keys with varying levels of security. Cold wallets are offline storage devices that allow users to store their private keys isolated from all network connections. Storing private keys in offline environments removes the risks that one is exposed to using online wallet applications, like hacks and phishing attacks. Such incidents are averted by cold wallets which is why they are the safest crypto storage solutions. However, it is important to be aware of the set of risks that users are exposed to while using cold wallets. Unless the private key or the recovery phrase are backed up in a different location, the loss or damage of these devices could mean loss of private keys and associated funds forever.

Controlling Your Own Private Keys

There are many centralized crypto platforms like online wallets and exchanges that offer an easy and convenient way for users to store their crypto assets without worrying about managing their keys. While these platforms make it easier for users to hold and interact with crypto assets, they come with a very significant downside – the private keys of these wallets are controlled by the platform with no means for the users to access it. With these platforms in-charge of safekeeping of all assets in their custody, the user effectively has no control over their own crypto holdings, and in an event the platform decides to block the user, shut down or gets compromised, users are left at the mercy of the platform operator to return the funds. Hence, it is always advisable for users to manage their crypto assets on blockchain wallets where they always remain in control of the private keys and in turn their crypto assets. As long as they have the private key, even if the wallet is corrupted or hardware wallet device lost, the funds associated with the wallet can be recovered on a different device or an application by using the private key.

Securing Key Storages with Passwords, MFA, And More

Some factors to consider with the self-custody of private keys are the need to implement security measures by oneself and, of course, the knowledge needed to operate security software and devices. Passwords are a commonly used layer of protection over most wallet devices and applications that prevents unauthorized access. The safety or private keys can be further enhanced by Multi-factor Authentication (MFA) systems like one-time passwords over secure lines of communication Using crypto wallets in multisig configuration or MPC wallets requiring multiple signatures to initiate transactions also enhances the security of crypto assets while introducing redundancy where the assets remain secured even if one of the multiple private keys is compromised. Additional backups of private keys should be stored in a secure and private place, accessible only to the user. In the end, if there is one thing every crypto user should remember, that is — Your crypto assets truly belong to you only as long as your private keys remain private and secure.

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