In the rapidly evolving world of cryptocurrency, protecting the security of digital assets is crucial. A key element of cryptographic security is storing backup copies of private keys. Private keys are the key to one’s cryptographic kingdom, and losing them can result in irreversible loss of money.
This article explains the importance of private keys, the risks they pose, and the different ways to securely back up your keys.
What is a private key?
In the world of cryptocurrency, every digital wallet is built on encryption keys, which form the basic element of its structure. These keys are unique to each user and play a key role in protecting personal assets.
The private key functions like a password, acting as a gateway to deposit and withdraw funds, while the public key mirrors the wallet address, allowing for seamless transactions. Private keys are generated through complex algorithms and are the key to ownership in the digital asset field.
In contrast to traditional banking systems, where lost login credentials can often be recovered, lost private keys in the cryptocurrency space cannot be recovered. Therefore, private keys and ownership are inseparable, and protecting them requires careful consideration.
To better understand the concept of private keys, let’s explore how they work:
Key generation
Public and private keys are the two cryptographic keys generated when creating a cryptocurrency wallet. The private key is kept secret and known only to the owner, while the public key is available to everyone and acts as an address to receive funds.
Ownership and security
The private key belongs only to the owner and functions like a digital signature. It needs to be kept confidential and secure at all times. Linked cryptocurrency funds are governed by anyone with access to private keys. Users can save private keys in a variety of formats, including encrypted digital files, paper wallets, and hardware wallets.
trade
When a user wishes to send cryptocurrency from a wallet, they use their private key to sign the transaction. The signature is verified by the network using the matching public key. The transaction is accepted and published to the blockchain, and the transfer signature is verified to be legitimate.
access and control
Having a private key enables an individual to access and manage funds. The private key must be kept secret and must not be leaked to any party. If a private key is lost or compromised, it is often impossible to recover the associated funds, a fact that highlights the importance of protecting this sensitive data.
Risks associated with losing access to private keys
In the digital world, losing access to private keys can pose significant risks, especially when it comes to online security and cryptocurrency. Private keys are required to enable secure transactions and confirm identity. If users lose their private keys, they could suffer financial losses and potentially face legal issues, effectively leaving them without control over their digital property.
In addition, losing private keys can also compromise network security. These keys allow hackers to impersonate users, which can lead to identity theft, illegal access to private data and even financial fraud. It emphasizes the importance of protecting private keys and employing secure backup procedures to avoid this dire situation.
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, accidentally threw away a hard drive containing his Bitcoin (BTC) private keys. The Bitcoin on the disk is now worth millions of dollars, but it is buried in a landfill and cannot be accessed.
Similarly, programmer Stefan Thomas owned 7,002 BTC, worth tens of millions of dollars, but the funds were locked because he forgot his password. On October 25, cryptocurrency recovery company Unciphered offered to unlock Stefan Thomas’ IronKey hard drive containing 7,002 BTC in an open letter, but Thomas has not yet responded to the offer.
How to backup private key
Backing up private keys can be accomplished through a variety of methods, each with its own advantages and disadvantages.
paper wallet
Using a paper wallet, which is a tangible file that holds an individual’s public address and private keys, is a common method for backing up private keys. Since it cannot be hacked online, creating a paper wallet offline provides greater security.
However, paper wallets are prone to deterioration over time, loss, or physical damage. They also make regular transactions difficult, as private keys must be imported into a digital wallet, which can be cumbersome.
Hardware wallet
A hardware wallet is an actual physical device designed to securely store private keys offline and is an additional security option. Hardware wallets resist malware and computer infections and provide greater security.
They accept various cryptocurrencies and are easy to use. But even though they are a one-time cost, and although they are more durable than paper wallets, there is still the possibility of damage, loss, or theft.
Encrypt digital files
Saving the private key as an encrypted digital file on an external storage device, such as an external hard drive or USB drive, is another popular method. In addition to convenience, this method also encrypts for added security. But there is also the possibility of digital theft and data corruption, so regular backups and encryption are crucial.
Encrypted cloud storage
Using an encrypted cloud storage service is another technique. Encrypted private keys can be stored securely in the cloud and can only be accessed using a strong password. This method can be accessed from anywhere with an Internet connection and often has automatic backup capabilities.
However, it raises questions about the security and reliability of cloud service providers and the potential for data leakage if services are compromised.
Mnemonic phrase
A mnemonic phrase (also called a seed or recovery phrase) is used for wallet recovery purposes. A recovery phrase is a user-friendly and readable backup that can be used to regenerate the private keys associated with a wallet if needed.
These word sequences are created using an algorithm and the user’s private key. If the private key is lost, a mnemonic phrase can be used to recover the private key if stored securely. This method is beneficial for individuals who do not want to rely on digital or physical backups. But since anyone who knows the mnemonic phrase can access the associated private keys and funds, it is crucial that it remains private and not leaked to unknown parties.
Step-by-step guide to restoring wallet using backup private key
To protect your funds, restoring a crypto wallet using a backup private key involves several steps, as explained below:
Step 1: Gather necessary items
You must first obtain the items required for the wallet recovery process. This requires downloading and preparing to install the official wallet software, and ensuring that private keys are securely backed up.
Step 2: Install wallet software
You now need to install the wallet software. You should launch the software and follow the on-screen instructions to complete the installation process. To minimize security risks, wallet software must be downloaded from the official website.
Step 3: Access the wallet
After installing the software, open the wallet and search for features that allow you to restore funds or import into an existing wallet. After selecting the “Import Private Key” option, carefully enter the private key linked to your wallet (and make sure it is accurate).
Step 4: Verify and protect
After entering the private key, the wallet software will find the corresponding balance on the blockchain. The balance shown must reflect your expectations and you must confirm this. You should also take extra security precautions with your wallet, such as configuring a password or using any other accessible security features.
Step 5: Backup and Test
After restoring and protecting your wallet, you will need to make a new backup. Any changes to passwords should be included in this backup as they may be updated. However, the recovery phrase and private key are fundamental to wallet security and should remain unchanged and do not need to be updated on subsequent backups. Next, you should send and receive a small amount of cryptocurrency from the wallet to test the transaction and ensure the recovery was successful.
Step 6: Additional Security Measures
This is where you should consider additional safety precautions. This may require creating frequent backups and turning on two-factor authentication if supported by the wallet. Maintaining the security of your funds requires updating your wallet software with the latest security patches and features.
How to restore a wallet using a backup’s recovery phrase
Restoring a wallet using a backup seed phrase is a simple process that requires access to the wallet’s restore functionality. The first step for users should be to install or launch the wallet software for the cryptocurrency they want to withdraw. After opening the software, users need to find the wallet recovery or recovery option, usually found in the settings or main menu and labeled “Restore Wallet” or a similar term.
After selecting the recovery option, the user needs to follow the instructions displayed on the screen. When first setting up a wallet, they may be asked to enter the seed phrase in the correct order. The user may have to reset the password of the retrieved wallet if required by the wallet software.
Afterwards, users need to wait patiently for the wallet software to synchronize. This process ensures that the wallet is updated with the latest transactions and information. After a successful sync, users should be able to access the restored wallet and contain correct balances and transaction records.
Will the private key change after the wallet is restored?
In most standard wallet recovery procedures, the private key associated with a specific wallet address remains unchanged. The goal is to regain access to the same wallet using the same private key when the user restores the wallet using a recovery phrase or any other backup method.
The recovery process typically involves the user using a backup (such as a recovery phrase) to regenerate the original private keys associated with the wallet. If the recovery is successful, users will be able to access 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 different wallets may handle recovery differently. They must follow the instructions provided by the wallet provider to ensure that the recovery process is smooth and accurate.
Common mistakes to avoid during wallet recovery
Users need to exercise caution during the wallet recovery process to avoid typical issues that can lead to the loss of cryptocurrency funds. Entering your private key incorrectly is a serious mistake and may result in permanent loss of access.
Additionally, users should avoid compromising the security of their wallets by revealing their recovery phrases and/or private keys to external parties. Another risk is falling for a phishing scam. Users should always double-check a website’s URL before entering important information.
Finally, not updating your anti-virus software and not backing up newly created private keys (in case funds are transferred to new keys) poses serious risks. Additionally, malware can be introduced by ignoring approved sources and downloading software from questionable websites.
Svlook
