In the rapidly evolving world of cryptocurrencies, it is critical to secure one’s digital assets. A crucial element of crypto security is storing a backup of private keys. Private keys are the keys to one’s crypto kingdom, and losing them can cause an irreversible loss of money.
This article will explain the importance of private keys, the risks they pose and the different ways to safely backup keys.
What are private keys?
In the world of cryptocurrency, every digital wallet is built upon a foundation of cryptographic keys, forming an essential element of its structure. These keys, unique to every user, play a pivotal role in securing one’s assets.
The private key, functioning akin to a password, acts as the gateway to accessing funds, while the public key mirrors the wallet address, enabling seamless transactions. Generated through complex algorithms, private keys are the linchpin of ownership in the digital asset realm.
In contrast to conventional banking systems, where misplaced login credentials are frequently recoverable, a lost private key in the cryptocurrency realm cannot be recovered. Therefore, the private key and ownership are inextricably linked, so protecting them requires careful consideration.
To better understand the concept of private keys, let’s explore how they work:
Key generation
A public key and a private key are the two cryptographic keys that are generated when a cryptocurrency wallet is created. The private key is kept confidential and known only to the owner, whereas the public key is available to all and acts as an address to receive funds.
Ownership and security
The private key belongs to the owner alone and functions similarly to a digital signature. It needs to always be kept secret and safe. The linked cryptocurrency funds are under the jurisdiction of anyone who has access to the private key. Private keys can be kept by users in a variety of formats, including encrypted digital files, paper wallets and hardware wallets.
Transactions
A user uses their private key to sign transactions when they wish to send cryptocurrency from their wallet. This signature is validated by the network using the matching public key. The transaction is accepted and posted to the blockchain, verifying the money transfer if the signature is legitimate.
Access and control
Having the private key enables an individual to access and manage the funds. It is imperative that the private key be kept confidential and not disclosed to any parties. The fact that there is usually no means to retrieve the linked funds in the event that a private key is lost or compromised highlights how crucial it is to protect this sensitive data.
Risks associated with losing access to private keys
In the digital world, losing access to private keys may pose significant risks, especially when it comes to online security and cryptocurrencies. Enabling secure transactions and confirming identification require the use of private keys. A user may suffer financial loss and maybe face legal issues if they misplace their private keys, which essentially gives them no control over their digital possessions.
Furthermore, internet security is compromised by losing private keys. These keys give a hacker the ability to impersonate the user, which could result in identity theft, unlawful access to private data or even financial fraud. It highlights how crucial it is to protect private keys and employ safe backup procedures to avert such dire circumstances.
The examples of James Howells and Stefan Thomas demonstrate the serious risks associated with losing access to private keys. In 2013, Howells, a British IT professional, unintentionally threw away a hard drive that had his Bitcoin (BTC) private keys. The BTC on the disk is worth millions of dollars now, but it’s buried in a landfill and cannot be accessed.
Similar to this, programmer Stefan Thomas has 7,002 BTC worth tens of millions of dollars, but the funds are locked away because he forgot his password. On Oct. 25, crypto recovery firm Unciphered offered to unlock Stefan Thomas’ IronKey hard drive containing 7,002 BTC in an open letter, but Thomas has not responded to the offer.
How to back up private keys
Backing up private keys can be done through various methods, each with its own advantages and drawbacks.
Paper wallets
Using paper wallets, which are tangible documents that hold an individual’s public address and private key, is a common method to back up private keys. Because it cannot be hacked online, creating a paper wallet offline offers higher security.
Nevertheless, paper wallets are prone to deterioration over time, loss or physical damage. They also make regular transactions difficult because one has to import the private key into a digital wallet, which can be a hassle.
Hardware wallets
Hardware wallets, which are actual physical devices made especially for safely keeping private keys offline, are an additional secure option. Hardware wallets are resistant to malware and computer infections and provide increased security.
They accept a variety of cryptocurrencies and are convenient to use. But even if they are a one-time cost, there is still a possibility of damage, loss or theft, although they are more durable than paper wallets.
Encrypted digital file
Keeping private keys on an external storage device, like an external hard drive or USB drive, as an encrypted digital file is another popular method. In addition to being convenient, this approach can be encrypted for increased security. But there’s also a chance of digital theft and data corruption, so regular backups and encryption are essential.
Encrypted cloud storage
Using encrypted cloud storage services is another technique. Encrypted private keys can be safely kept in the cloud and accessed only with a strong passphrase. This approach has the ability to be accessed from any location with an internet connection and frequently comes with automated backup capabilities.
However, it raises questions about the cloud service provider’s security and reliability, as well as the potential for a data breach in the event that the service is compromised.
Mnemonic phrases
Mnemonic phrases — also referred to as seed or recovery phrases — are employed for wallet recovery purposes. The recovery phrase is a user-friendly and human-readable backup that, when needed, can be used to regenerate the private keys associated with a wallet.
These word sequences are created using an algorithm and a user’s private key. In the event of a loss, mnemonic phrases can be utilized to recover the private key, if stored securely. This approach is beneficial for individuals who would rather not depend on digital or physical backups. But since anyone who knows the mnemonic phrase can access the related private key and funds, it’s crucial to keep it private and not divulge it to unknown parties.
Step-by-step guide to recovering a wallet using backed-up private keys
To protect your funds, there are several steps involved in recovering a crypto wallet using backed-up private keys, as explained below:
Step 1: Gathering the necessary items
You must first acquire the items required for the wallet recovery procedure. This entails downloading and having the official wallet software ready for installation, as well as making sure the private keys are safely backed up.
Step 2: Installing the wallet software
You now need to install the wallet software. You should launch the software and follow the on-screen instructions to finish the installation procedure. To minimize security risks, the wallet software must be downloaded from the official website.
Step 3: Accessing the wallet
Once the software is installed, open the wallet and search for the feature that permits restoring funds or importing an already-existing wallet. Carefully enter the private key linked to your wallet (and make sure it is accurate) after choosing the “Import Private Key” option.
Step 4: Verifying and securing
The wallet software looks up the corresponding balance on the blockchain after the private key is entered. The displayed balance must reflect your expectations, which you must confirm. You also ought to take additional security precautions for the wallet, such as configuring a passcode or using any other accessible security features.
Step 5: Backing up and testing
You need to make a new backup after your wallet has been restored and secured. Any changes to passwords should be included in this backup, as they are subject to updates. However, recovery phrases and private keys, being foundational to the wallet’s security, should remain unchanged and do not need to be updated in subsequent backups. Next, you should send and receive a small quantity of cryptocurrency from the wallet to test transactions and make sure the recovery is successful.
Step 6: Additional security measures
Here, you should consider extra security precautions. This can entail creating frequent backups and, if the wallet supports it, turning on two-factor authentication. Maintaining the security of the funds requires keeping the wallet software updated with the newest security patches and features.
How to recover a wallet using a backed-up recovery phrase
Using a backup seed phrase to recover a wallet is a straightforward process that requires gaining access to the wallet’s recovery feature. The first step for the user should be to install or launch the wallet software for the cryptocurrency they want to get back. Upon opening the software, the user needs to locate the wallet recovery or restore option, typically found in the settings or main menu, and labeled as “Recover Wallet” or a similar term.
After choosing the recovery option, the user needs to adhere to the instructions displayed on the screen. When the wallet is first set up, they will probably be asked to enter the seed phrase in the correct order. The user might have to reset the password for the retrieved wallet if the wallet software demands it.
Subsequently, the user should patiently wait for the wallet software to synchronize. This process ensures that the wallet is updated with the latest transactions and information. Following successful synchronization, the user should have access to their recovered wallet, complete with the correct balance and transaction history.
Is there a change in the private keys when a wallet is recovered?
In most standard wallet recovery processes, the private key associated with a particular wallet address remains the same. The goal is to regain access to the same wallet using the same private keys when a user recovers a wallet using a recovery phrase or any other backup method.
The recovery process typically involves the user using the backup (such as a recovery phrase) to regenerate the original private keys that were associated with the wallet. If the recovery is successful, the user will have access to the same funds and addresses that were in the wallet before any issues occurred.
However, users should understand the specific details and nuances of the wallet software or service they are using, as there could be variations in how different wallets handle recovery. They must follow the instructions provided by the wallet provider to ensure a smooth and accurate recovery process.
Common mistakes to avoid during the wallet recovery process
Users need to exercise caution during the wallet recovery process to steer clear of typical issues that could result in the loss of their cryptocurrency funds. Typing the private key incorrectly is a serious mistake that could cause access to be permanently lost.
Furthermore, users should avoid compromising their wallet’s security by disclosing their recovery phrases and/or private keys to outside parties. Another risk is falling for phishing scams; users should always double-check the URLs of websites before inputting important data.
Finally, there are serious risks associated with not updating antivirus software and not backing up newly created private keys (in case funds are transferred to a new key). Also, malware can be introduced by ignoring approved sources and downloading software from dubious websites.