Apart from blockchain, the highly cryptic and underlying technology of cryptocurrencies, there are other instruments incorporated to keep the tokens secure. Functions like the private keys, lengthy bitcoin addresses, and digital signatures go a long way to ensure crypto transactions and storage is safe.
From that point in case, it is crucial to familiarize yourself with these security features because as much as they are vital for your crypto’s safety, they are also a gateway that scammers deem vulnerable in an attempt to steal your digital assets. These security features include:
i. A private key
This is a 64-character long code that includes any blend of the letters A-F and the numbers 1–9. This code is what users require to access the bitcoins in their accounts, and should thus be kept as a secret to keep the assets secure.
ii. A public key
Almost similar to the private key, this is a distinct identifier for your account on the blockchain that also functions as your bitcoin address during transactions. Both private and public keys work together to allow you to transact with other users. They are generated by a complex mathematical algorithm outside the blockchain network and stored in a file called a wallet.
iii. Digital Signatures
These are unique fingerprints which can only be generated with a valid private key. Each transaction requires a unique digital signature.
In Layman’s: The public key can be looked at as similar to a bank account number with the private key functioning as the secret PIN that provides access to the account. In other words, the private key is used to prove ownership of an address and sign transactions to send bitcoin to another address. Addresses/public keys are usually on the blockchain, which makes them visible to other users on the network.
When sending payments to another user on the blockchain network, the recipient’s public key is used as a digital fingerprint representing his/her bitcoin address, similarly to how you would denote a beneficiary’s name on a bank check.
How are keys generated?
Private keys are generated by a complex mathematical algorithm outside the blockchain network. The public key and address are then generated from the private key automatically during each transaction. Both keys are stored inside a wallet file and managed by the wallet software.
A cryptocurrency wallet is a secure digital file that is used to store, send, and receive bitcoin or other altcoins such as Litecoin and Ethereum. The wallet has a sophisticated software program that stores your cryptocurrency safely away from hackers until you are ready to send it to a different address. The wallet software also mathematically processes a transaction together with the right private key each time you send bitcoin.
All transactions are done on the blockchain, which is a ground-breaking technology that allows a circulated, incorruptible digital record to exist and verify that the bitcoin address truly has the amount being sent.
The public key and address generated will be different with each transaction, but the private key never changes. Therefore, people will use a private key to authorize the blockchain network to transfer balances out of an address linked with that private key to another address which is in turn linked and controlled by a different private key.
Keeping your Bitcoin wallet secure
The primary security feature for Bitcoin transactions is the 254-bit private key discussed above that allows you to make irreversible transactions when sending bitcoins to a different address. Additionally, the private key creates a unique mathematical signature each time you transact, ensuring it cannot be copied, and the user will be able to use the same private key over and over again.
Once a user sets up a new Bitcoin wallet, the crypto program in it randomly generates a unique private key. The user must then write down and store the private key in a safe place as it is the only entry to the wallet, and whoever has it has access to all the digital assets.
Securing your private key
Some crypto enthusiasts prefer to memories the private key by tactics such as using long strings or sentences that are not too complicated to remember. While this could be considered safer than having the key on an online paper wallet that can be hacked, there is the real danger of the user forgetting the key, passing away or either becoming mentally incapacitated, which would mean the virtual currencies linked to that address will be lost forever.
This was the case recently in February 2019, when the unexpected death of the owner of Canada’s largest cryptocurrency exchange left £145 million of cryptocurrency locked in a digital wallet to which he was the only sole holder of the password.
With offline storage for major cryptocurrencies seemingly problematic, the use of cryptostorage has come to the rescue of many users. The service provides online backup storage of a wallet’s private key data in a secure server which generates the key in the browser whenever required without the possibility of the data being accessed by any third parties. Users on Cryptostorage can save keys to a secure file or print a paper wallet directly. Additionally, users get the option to encrypt keys with a passphrase.
The real danger for many crypto users is clever tricks aimed at getting them to voluntarily import their private keys to a third party. For instance, there was a scam ran by a team of hackers in 2017 dubbed “Bitcoin Pay” that enticed users to share their private key with the project developers in order to claim new tokens.
The lesson from such scams is clear — when using your own crypto wallet, never share this key with anyone. You should also keep backups of all your wallets.
Using Seed Phrases to protect your private key
Seeds are a series of characters that the wallet uses to generate private keys for your addresses. The software program managing your wallet will typically generate a unique seed phrase in the initial stage of setting up your crypto account. You will then need to write this seed phrase down and keep it safe.
In the unfortunate event that your smartphone, laptop, computer hard drive, or other data storage device crashes or gets stolen, you can download the wallet software and use the seed to regenerate your private keys. This safety feature is absolutely important in storing bitcoins and is typically a built-in on most renowned wallets such as Bitcoin Cash Wallet.