Private keys are made of numbers and letters, they are used to uniquely identify users which will allow them to perform secure transactions.
A cryptocurrency private key uniquely identifies, authenticates, and grants you access to your account, enabling you to spend or send the cryptocurrencies in your wallet. This means that you will lose your assets if you lose your private key. Fortunately, there are methods to help store your private keys as will be seen later.
Private Key vs Public Key- What’s the difference?
Private keys are NOT public keys. A public key or address allows other users to identify you and your account during a transaction.
By way of analogy, a public key is like a bank account number which others can know and they require it to transact with you. On the other hand, the private key is your PIN code which you need to access your bank account at the ATM. Only you should know that secret PIN code as anyone who knows it can withdraw funds from your account.
To learn more about how this technology came about, check out my interview with one of the pioneers of public-key cryptography-Whitfield Diffie.
How are private keys generated?
The platform first generates a private key using random mathematical sequences. From there, the public key is generated.
How do you access your cryptocurrency using a private key?
There are 2 ways to access your cryptocurrency once you have a cryptocurrency account and a private key:
- Vsit a reliable Digital Ledger Technology (DLT) website using your internet browser and log onto your account using your private key. The site will confirm that the account matches the private key and allow you to view and perform transactions online. However this method of directly logging in through a browser is inconvenient as you must input all the alphanumeric characters of your private key every time you wish to transact; or
- Use a cryptocurrency wallet. With this wallet, all your private keys will be stored and accessed with a simpler to master authentication phrase. The wallet will provide the private key when you make a transaction. There are several kinds of wallets which store your private and public keys, e.g.
• Desktop wallet e.g. Exodus wallet
• Mobile wallets e.g. Enjin wallet
• Hardware wallet e.g. Ledger Nano X, Trezor Model T
• Software wallet e.g. Electrum wallet
Speaking of wallets, you’ll also hear people mentioning “hot wallets” and “cold wallets”. It may sound confusing at first, but it simply refers to whether they are connected to the internet or not. Hot wallets are connected to the internet, whilst cold wallets are not.
Click here to learn more about hot and cold wallets, and their pros and cons.
What is a seed phrase / recovery phrase? What does it have to do with your private key?
In our wallet setup tutorial videos you there will be a step where you need to write down and keep in safe custody a string of words. This is known as your seed phrase. The seed phrase is generally 12 or more English words which is used to encrypt your private key into an easier to understand format (i.e. instead of a string of letters and numbers). Therefore, anyone who has access to your seed phrase has access to your private key.
How can I keep my seed phrase safe?
Your seed phrase (or recovery phrase) is essentially your private key, but encrypted in an easier to understand format. Therefore it is crucial to keep it safe from hackers and thieves. Here’s some tips and tricks which you could consider to keep them safe.
Recording your seed phrase:
- Write down your private keys using pens with permanent ink and paper that would not smudge or cause ink to fade over time (e.g. paper which receipts are usually printed on).
- Laminating the paper which your seed phrase is recorded on to avoid water damage.
- Avoid the cards provided to you by the wallet manufacturers to write down your seed phrase i.e. do not use the recovery cards provided by say Ledger to record your Ledger seed phrase. This is to try and make it that much more difficult for thieves to piece the puzzle together.
- There may be debate on this, but some have suggested to have more than 1 copy of the seed phrase in case it gets lost.
- For those who are worried about using pen and paper. Some companies such as Cryptosteel which sells devices with metal tiles for you to record your recovery seed on.
- Some have even come up with the idea of memorising the entire phrase themselves, or having their trusted friends and family to memorise several words each.
Confirming your seed phrase: As a best practice, once you’ve copied down your seed phrase you should confirm the phrase with the following steps. Firstly to send a small amount of cryptocurrency to the public key that is generated, then to delete the account from your device. Finally to import your account to your device again. If you see the same amount of cryptocurrency in your device, then the seed phrase correctly corresponds to your account.
Storing your seed phrase: if you have several copies of your seed phrase, you can store it in several discrete locations which are ideally safe from the elements and not obvious to find. Another best practice is also to keep your seed phrase in a separate location from your hardware wallet.
What happens if you lose your private key?
If you lose your private key, you will not be able to access any funds in your account. Because of the secure nature and random mathematical sequences used to generate the private key, nobody will be able to recover your private key and consequently the cryptocurrencies.
It is therefore advisable that you keep your private key very safely.
Using a cryptocurrency hardware wallet can prevent loss of your private key.
When setting up the wallet and syncing with the accounts, users must set an 18 to 24-word recovery phrase. This recovery phrase is then used to restore your device and consequently your private key.
Cryptocurrency private keys and cybersecurity
Anyone that has access to your private key can access your funds. This is the same for the recovery phrase.
Therefore, be careful not to reveal your private key to anyone. You should also be careful not to inadvertently give thieves access to your funds by saving your recovery phrase online or taking photos of it.
To prevent theft, one option that some people use is to save the private key offline on a paper wallet.
Conclusion
A cryptocurrency private key is a unique identifier that distinguishes your cryptocurrency account from others. It generates the public key that your trading partners will use to transact with you, and allows you to log in and transact with them.
Therefore you should ensure your seed phrase/ recovery phrase and thus your private keys remain safe.
Updated 30th March 2020: Added 2 new sections “What is a seed phrase / recovery phrase? What does it have to do with your private key?” and “How can I keep my seed phrase safe?”