In the realm of digital security, encryption is the most important tool—literally, the key to protecting our digital world (pun intended). It works by transforming data into a complex cipher that can only be unlocked using a designated “key,” ensuring that sensitive information remains protected from unauthorized access.
This cryptographic technique eliminates the need for a centralized body to oversee and verify transactions, making it a revolutionary tool in the realm of data security. It is the essence of cryptography, and it is no surprise that it is a foundational pillar of cryptocurrencies and the burgeoning Web3 ecosystem.
What is a public key?
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| What is a public key? |
A public key, often referred to as a “public address,” serves as a cryptographic identifier that allows you to receive cryptocurrency transactions. Similar to traditional banking, it’s like your bank account number that others would use to transfer funds to you.
Intricately linked in the realm of cryptography, your public key is algorithmically generated from its counterpart, the private key. While the private key remains a secret piece of information—like a password or PIN—your public key is designed to be shared openly. It acts as an address label, providing others with the information necessary to send cryptocurrency as you wish. Additionally, this transparent sharing mechanism ensures traceability and verifiability of transactions on the blockchain, emphasizing the decentralized nature of the system.
Remember, in order to facilitate and receive transactions in the cryptocurrency world, making your public key accessible to potential senders is essential. However, always make sure that your private key remains secret to maintain control and security over your digital assets.
What is a private key?
A private key, sometimes called a “secret key,” serves as a cryptographic instrument that is essential for authorizing and signing cryptocurrency transactions. Similar to a traditional banking system, it can be compared to the PIN you use to authenticate and gain access to your bank account.
This key is your personalized digital signature, ensuring that every transaction you make is authentic and unaltered. Because of its critical role in safeguarding your digital assets, your private key must be treated with the utmost confidentiality. Sharing it is like giving someone unlimited access to your bank account.
The blockchain ecosystem emphasizes strong security measures, and your private key is at the heart of the system. If you misplace or lose access to this key, the consequences are dire—you will not only lose the key, but also any cryptocurrency assets associated with it. Therefore, it is essential to store it securely, preferably in an encrypted form or a hardware wallet, to prevent potential threats and unauthorized access.
Investors who have already invested in the Crypto world are familiar with why using a private wallet is so important. If you are a beginner who is just getting to know the world of crypto, of course you have heard that storing your digital money on an exchange is very dangerous. Surely many of your friends have recommended you to use a private wallet.
However, by using a Private Wallet as well as certain risks such as losing the Private Key or damage to your hardware wallet, here are some tips for storing your private key and your hardware wallet "recovery code".
In comparison Wallet, can be divided into 2 types:
- Hot Wallet: Hot wallet is a digital wallet where your wallet is connected to the internet. Example: saving a wallet on an exchange or in a file/folder on your own computer.
- Cold Wallet: In contrast to a hot wallet, a cold wallet is stored offline and usually cannot be accessed via the internet, this wallet is in the form of a USB/Hardware Wallet.
Many people have hot wallets and cold wallets because each is designed for a different purpose.
What is the best way to store crypto private keys?
Cold Wallet is definitely safer than Hot wallet because you are safe from cyber attacks (hackers cannot steal digital coins that are not connected to the internet). But why do people still choose to keep their money in Hot Wallet? Because young hot wallets are accessible and provide easy liquidity/trading.
1. Hot Wallets
a. Accounts
Accounts on digital asset exchange websites such as Binance or Indodax are considered hot wallets because these companies store your digital assets. Your private key/account is on their infrastructure and servers. If Binance and Indodax are hacked, and you have an account registered on their servers, then there is a high risk that you will lose money because Binance/Indodax is keeping your money.
If you are very comfortable with using the wallet of your exchanger, it is recommended to enable your Google 2FA on the site. 2FA can be in the form of SMS, Email or Authentication App, it is recommended to use the Auth App, Email and SMS can be hacked but the Auth App is safer.
b. Software
Another form of hot wallet is based on a software application that is downloaded to your computer, such as neonwallet or exodus.io. Wallets like this, your cryptocurrencies are in your own control because they don't store your private key on their server therefore they can't access your wallet. However, this can still be dangerous because hackers can still access your digital money with access to your computer.
2. Cold Wallets
There are many types of Cold wallets such as paper wallets, hardware wallets or physical bitcoins. But I will only focus on hardware wallets.
a. Hardware Wallets
Hardware wallets are physical devices that are stored offline and can be accessed by connecting them to your computer. This wallet is secure because you are required to confirm each transaction by pressing a button on the device. This function is what makes it hackproof.
This type of digital wallet is generally recommended for storing large sums of money. It's like storing Crypto coins on a hard drive, but they are hardware specifically made to store Cryptocurrencies safely. We can turn on this device to transfer coins, upload data and take it offline for more secure storage.
Each hardware wallet device is given a "recovery code", this code is very important for you to record and store properly because if your hardware wallet is lost or damaged, then you can get your wallet back.
To date, there are no incidents that can prove the theft/hacking of cryptocurrency from hardware wallets/wallets. Hardware wallets are relatively new, but at least for now they have maintained a good track record.
The following are tips and suggestions for storing your private key and recovery code:
Do not store your Private Key on your computer, it is safer to store your Wallet in paper form or offline notes. It is recommended to store not only 1 copy but at least 2 copies of your private key or your recovery code in two different places. If lost, you can still access your private key or recovery code.
Be careful with your hard drive, if you store a hot wallet in the form of a file/folder then there is always a risk that your hard drive will get a virus or the hard drive will be damaged, even though the hard drive can be repaired, the price is usually expensive, from one million rupiah to eight million depending on your damage and not all damage can be repaired.
What are the weakness of public key encryption?
While public key encryption, also known as asymmetric encryption, offers a multitude of benefits in ensuring secure communications, it is not without its challenges.
1. Computational Intensity
The primary drawback of public-private key encryption systems lies in their computational demands. Given the complex algorithms underlying asymmetric encryption, they inherently require more processing power and time than their symmetric counterparts. This can potentially lead to performance bottlenecks, especially on systems with limited computing resources.
2. Extended Ciphertext
In the field of public key cryptography, ciphertext—essentially an encrypted version of a message or transaction—tends to be much larger than the original plaintext. This expansion is due to the longer public key, which needs to be appended to each encrypted communication for decryption purposes. For busy cryptocurrency networks, managing the additional volume of data can be challenging, potentially causing congestion or slowing down transaction validation.
3. Limitations with Large Datasets
Asymmetric encryption may not be the optimal choice when dealing with large data sets. Public and private key generation is usually done simultaneously, meaning they are of equal size. Encrypting large data sets would require keys of equal size, making the process inefficient.
4. Hybrid Systems for Efficiency
Recognizing these limitations, many contemporary cryptocurrency systems adopt a hybrid approach. By combining the power of public-private key encryption with symmetric encryption and strong hashing algorithms, they achieve a balance between security and efficiency. This combination ensures that while the data remains secure, the process remains agile and scalable, meeting the dynamic demands of modern digital transactions.
Conclusion
Cryptocurrency has transformed the global financial landscape and continues to offer exciting innovation potential. From Bitcoin as “digital gold” to smart contract platforms like Ethereum, crypto opens up new opportunities in transactions, investments, and applications of blockchain technology.
However, like any new technology, cryptocurrency also carries risks and challenges. Price volatility, regulatory issues, and security remain major concerns. It is important for users and investors to do thorough research, understand the risks, and take steps to protect their digital assets.
The future of cryptocurrency remains uncertain, but its potential to transform the financial system and many other industries cannot be ignored. As technology and regulation evolve, we will likely see wider adoption and deeper integration with the global economy.
For those interested in getting involved in crypto, education and caution are key. Start with understanding the basics, stay up to date with industry developments, and always prioritize security in every transaction and investment.