top of page
Search
maybelricolchete

Keeping hold of your private keys: CryptoCurrency mistakes to avoid and how to recover them



A commercial non-custodial cold wallet is one of the safest methods for storing your keys. Considering you may be able to purchase one for about $200 to secure cryptocurrency worth far more than that, they can be worth it."}},"@type": "Question","name": "Can You Lose a Cold Wallet?","acceptedAnswer": "@type": "Answer","text": "Yes. Examples of cold storage might be a piece of paper you've written your keys on, a device no bigger than a USB thumb drive, or one that resembles a small cell phone. These are easily misplaced, so if you have one, ensure you develop the habit of securing them in the same place every time you use them.","@type": "Question","name": "Can Cold Wallets Be Hacked?","acceptedAnswer": "@type": "Answer","text": "Cold wallets, by definition, are not connected to the internet or another device, so they cannot be hacked. When you connect them to a device, they become vulerable."]}]}] EducationGeneralDictionaryEconomicsCorporate FinanceRoth IRAStocksMutual FundsETFs401(k)Investing/TradingInvesting EssentialsFundamental AnalysisPortfolio ManagementTrading EssentialsTechnical AnalysisRisk ManagementNewsCompany NewsMarkets NewsCryptocurrency NewsPersonal Finance NewsEconomic NewsGovernment NewsSimulatorYour MoneyPersonal FinanceWealth ManagementBudgeting/SavingBankingCredit CardsHome OwnershipRetirement PlanningTaxesInsuranceReviews & RatingsBest Online BrokersBest Savings AccountsBest Home WarrantiesBest Credit CardsBest Personal LoansBest Student LoansBest Life InsuranceBest Auto InsuranceAdvisorsYour PracticePractice ManagementFinancial Advisor CareersInvestopedia 100Wealth ManagementPortfolio ConstructionFinancial PlanningAcademyPopular CoursesInvesting for BeginnersBecome a Day TraderTrading for BeginnersTechnical AnalysisCourses by TopicAll CoursesTrading CoursesInvesting CoursesFinancial Professional CoursesSubmitTable of ContentsExpandTable of ContentsBitcoin StorageTypes of StorageThe Safest Bitcoin StorageSecurity PrecautionsSafe Bitcoin Storage FAQsThe Bottom LineCryptocurrencyBitcoinWhat Are the Safest Ways To Store Bitcoin?ByLuke ConwayFull BioLuke Conway follows and researches the cryptocurrency and fintech space. Luke is an expert on blockchain and cryptocurrency.Learn about our editorial policiesUpdated February 09, 2023Reviewed byJulius MansaBitcoin and crypto use is growing the most in lower and middle-income countries; it is used to send remittances, preserve savings, and act as a substitute when financial services unique to the countries are hard to access.




Keeping hold of your private keys : CryptoCurrency




A commercial non-custodial cold wallet is one of the safest methods for storing your keys. Considering you may be able to purchase one for about $200 to secure cryptocurrency worth far more than that, they can be worth it.


Yes. Examples of cold storage might be a piece of paper you've written your keys on, a device no bigger than a USB thumb drive, or one that resembles a small cell phone. These are easily misplaced, so if you have one, ensure you develop the habit of securing them in the same place every time you use them.


If your private keys are stolen or misplaced, or if you store them on a device that crashes, there is no bank or institution to back you up or give you a replacement: you lose access to your crypto.


With a hardware wallet, even if a hacker succeeds in getting control of your computer, they will not be able to steal your private keys and access your crypto assets. Your private key is kept offline and limits the risk of hacking.


In short, hardware wallets are the most secure option for storing your crypto, both because they keep your private keys safe in an offline environment and because they offer certainty about your transaction details via their tamper-resistant screen.


Software wallets are applications that manage cryptocurrencies. They can be installed on your computer or smartphone. You remain in control of your private keys; they are not shared with or controlled by a third party.


Not sure what a public or private key is? A key is a long string of random, unpredictable characters. While a public key is like your bank account number and can be shared widely, your private key is like your bank account password or PIN and should be kept secret. In public-key cryptography, every public key is paired with one corresponding private key. Together, they are used to encrypt and decrypt data.


There are two main types of crypto wallets: software-based hot wallets and physical cold wallets. Read on to learn about the different types of cryptocurrency wallets, and which is best for you and your needs.


In hot wallets, private keys are stored and encrypted on the app itself, which is kept online. Using a hot wallet can be risky because computer networks have hidden vulnerabilities that can be targeted by hackers or malware programs to break into the system. Keeping large amounts of cryptocurrency in a hot wallet is a fundamentally poor security practice, but the risks can be mitigated by using a hot wallet with stronger encryption, or by using devices that store private keys in a secure enclave.


A paper wallet is a physical location where the private and public keys are written down or printed. In many ways, this is safer than keeping funds in a hot wallet, since remote hackers have no way of accessing these keys which are kept safe from phishing attacks. On the other hand, it opens up the potential risk of the piece of paper getting destroyed or lost, which may result in irrecoverable funds.


A hardware wallet is an external device (usually a USB or Bluetooth device) that stores your keys. You can only sign a transaction by pushing a physical button on the device, which malicious actors cannot control.


The main difference between custodial wallets and the types mentioned above is that users are no longer in full control of their tokens, and the private keys needed to sign for transactions are held only by the exchange.


A hardware wallet is one of the least stressful and provably secure ways of storing cryptocurrencies. Hardware wallets are storage devices like flash drives; however, they are specifically designed and encrypted for the storage of cryptocurrencies. Hardware wallets are designed to generate private and public keys through seed words when they are initialized.


Finally, if you are investing in or trading cryptocurrencies, you should create a plan for transferring your cryptocurrency wealth to your loved ones after your demise. If someone passes away without making plans for their cryptocurrency to be inherited; such coins could be lost forever because it is practically impossible to access cryptocurrency without public and private keys. Hence, you should make sure to include the information about your private keys into your will.


If you've looked into getting a crypto wallet, you may hear that it comes with a key. In fact, it comes with two keys: a public key and a private key. They are both essential and they do different, complementary jobs.


The private key on the other hand is for the wallet owner only. The private key functions as a password to your crypto wallet and should be kept secret. The thing you must understand is that if someone discovers your private key, they will have access to all the crypto in that wallet and can do whatever they want with it.


Many wallets use a "seed phrase," also known as a "secret recovery phrase," to unlock your wallet. If you open a crypto wallet with MetaMask, you will be assigned a string of random words that you use to unlock your funds. Your private key is hidden inside the software behind this user-friendly string of words.


However, if you keep your crypto in an exchange wallet (such as Coinbase or Binance) or with a custodian, then that company holds your private key for you. Strictly speaking, it would control your funds on your behalf.


The function of the private key, technically speaking, is to "sign" transactions that use your funds. Transactions using your funds cannot be validated by the network without your private key attached. The public key encrypts transactions, which can be decrypted only by the corresponding private key. The technology is called public-key cryptography, sometimes abbreviated PKC, or asymmetric cryptography.


A final note that cannot be stressed enough is that you must keep your private key or seed phrase or both safe and secret. Write it down and store it in several places as there is no way to recover it if you lose it or it gets into the wrong hands. Don't take a screenshot of it or take a picture with your phone as these digital copies are often targeted by hackers.


Popular options from companies like Ledger, Trezor and SafePal also let you authorize transactions from the physical device. While you need to connect your device to a phone or computer and the internet to trade crypto, the private key never gets sent over the connection. Therefore, your wallet can remain secure even if the device it's connected to is compromised.


The main drawback to hardware wallets (and noncustodial software wallets) is that you're completely responsible for keeping your wallet secure. If you lose a hardware wallet or get locked out of a software wallet, you can recover the wallet using your seed phrase. But if you lose your seed phrase, you might not be able to access your crypto ever again.


The argument often made against using a custodial account is that you're relinquishing control of the private keys to the company that controls the wallet. The company might get hacked, go bankrupt or lose your crypto. Or the entire exchange might be a scam. Additionally, you can't use a crypto exchange account to access many parts of the crypto financial system, such as decentralized finance apps. 2ff7e9595c


0 views0 comments

Recent Posts

See All

Comments


bottom of page