Private keys are an essential part of cryptocurrency and play a vital role in the blockchain. While blockchain is a continuously growing chain of cryptocurrency transactions, private keys are the unique data that is held by the cryptocurrency owner.
Private keys are not stored on the blockchain. A private key is a unique set of secret alphanumeric characters used to protect cryptocurrency and prove ownership. There are various methods to store private keys.
A private key is essentially proof of ownership, so it should be maintained and stored with care. Blockchain was not designed to store private keys, but there are other storage options. This article will explain all of this and more, so stay tuned!
What Is Stored on Blockchain?
Blockchain is a database, and databases are designed specifically to store information. Each block contains data in a rolling ledger form, which contains a record of transactions.
Transaction records are stored on Blockchain in a decentralized manner. While this allows many to use the blockchain, no one person or group manages or owns it. Because of this, blockchain and the transactions on the blockchain are transparent.
All records stored on the blockchain are fixed. They cannot be deleted, removed, or otherwise altered. Each user of the blockchain has a copy, so private keys cannot and should not be stored here.
Private Keys Versus Public Keys
As stated above, private keys are a unique, secret code used as proof of cryptocurrency ownership and consist of many alphanumeric characters. Since private keys are directly tied to ownership of cryptocurrency, it is imperative that this code be kept safe and secure.
Public keys, on the other hand, are created in part and used along with a private key. Since public keys are public, they can be readily shared while allowing private keys to remain secret.
Public keys may be too long, and in those cases, they may be stored elsewhere, like digital certificates, to promote sharing. Public key cryptography serves two purposes:
- As a digital signature
- To encrypt
A digital signature is content that is signed with an individual’s private key, but the private key is kept secret by verifying the signature with the individual’s public key. This means that the signature is authentic and can not be falsely duplicated.
As with digital signatures, the public key works in conjunction with the private key for the encryption process. The content is encrypted with the public key but is decrypted with only the private key, which ensures confidentiality.
Private Key Storage Options
Private keys must always remain stored in a secure location, but they should be accessible. If a user loses their private key, there are no other ways to retrieve it. Thus, it is imperative that all users retain their private keys. Below are some of the options available for private key storage.
Some of these storage options are interrelated and even overlap, and they are not all completely separate entities. The descriptions will better acquaint you with storage options.
Many cryptocurrency beginners purchase cryptocurrency on an exchange platform, but once the purchase is complete, many leave the cryptocurrency on the platform. Essentially, this is the simplest and perhaps most basic form of storage.
While it may be easy and convenient, you are leaving the exchange to provide security for your private keys. Exchange platforms have some security features, but it should not be overlooked that these exchange platforms are susceptible and vulnerable to hackers and crypto attacks.
Hardware wallets are an offline storage option. They are sometimes referred to as cold storage or cold wallet. A hardware wallet is a physical device, and because the private keys are stored on a separate device, it is nearly impossible for a hacker to gain access.
Hardware wallets are secured with a locking feature.
In fact, hardware wallets are considered one of the safest methods for storing private keys. For most of these devices, the user must enter a PIN, two-factor identification, or some other security measure to access private keys.
The cost of hardware wallets ranges from as little to $60 to about $180.
They are a good investment as they are often considered the most secure storage of all the options as they are fully isolated from the internet. In particular, this may be the best choice for people who have a large amount of cryptocurrency.
Some of the most popular hardware wallets are as follows:
- D’Cent Biometric Wallet
- Ledger Nano S
- SafePal S1
- SecureX V20/Secure X W20
- Steel Bitcoin Wallet
- Tremor Model One/Trever Model T
A custodial wallet is a storage wallet that is secured by a third party. The majority of custodial wallets are web-based, and a custodial wallet takes on the task of securing your private keys, in turn, securing your cryptocurrency. You are putting your trust in the third party.
If you decide to use a custodial wallet, there are a few that stand out:
- Coinbase: Coinbase is a wallet that is accessible through an app for both Android and iOS. This wallet also allows trading in partnership with the company’s exchange.
- CoinSpot: CoinSpot allows for trading within the wallet, although the downside to this is high exchange rates.
- Freewallet: Freewallet is one of the most popular wallets worldwide. It includes security features like two-factor authentication, fingerprint login, and PIN codes. It also supports many forms of cryptocurrency.
- Holy Transaction: Holy Transaction provides an extra layer of security with two-factor authentication. It has limited cryptocurrency offerings, however.
- MetaMask: MetaMask is a leading wallet for Ethereum users, and it is available via a browser extension and mobile apps. Like Coinbase, it links to the exchange.
Self-custody wallets are quite the opposite of custodial wallets and are sometimes referred to as non-custodial wallets. This storage option puts the cryptocurrency owner in complete control as the owner possesses the private key.
Being in control of your private key lends control of your cryptocurrency.
Self-custody wallets circumvent issues that may arise with custodial wallets.
Some custodial wallets have withdrawal limits and are almost guaranteed to charge a fee. If there are any technical issues with the platform, you won’t have access to your cryptocurrency until the technical issues are resolved.
Further, some self-custody wallets allow direct connection to exchanges. This allows users to buy and sell cryptocurrency at their own discretion since the user has complete control.
Hot wallets are online wallets, essentially the opposite of a hardware wallet. Hot wallets typically allow users to not only store but also purchase and sell cryptocurrency. They are sometimes referred to as software wallets.
The connection to the internet provides convenience and easy access, but this increases the vulnerability of hacks. It’s best to research thoroughly as not all may have security and privacy measures in place to keep your cryptocurrency safe.
Some of the most utilized hot wallets are:
- BRD (Breadwallet)
- Trust Wallet
Paper wallets are reminiscent of yesteryear. Instead of relying on the internet for storage, paper wallets remove the online aspect and the hackers that accompany them.
Individuals who utilize paper wallets essentially print their private keys and associated addresses onto a sheet of paper. However, this method is not without flaws, because if the paper document is lost, torn, or otherwise damaged, you will permanently lose the private key, along with the cryptocurrency.
Private keys are not and should not be stored on the blockchain. However, public keys are paired with private keys to ensure confidentiality and protect users. There are various other storage options for private keys.
- Investopedia: What Is Blockchain?
- ByBit Learn Best Non-Custodial Wallets for Convenient and Secure Crypto Storage
- Investopedia: Hot Wallet
- GlobalSign: What is Public-Key Cryptography
- Investopedia: Private Key
- CNET: Best Bitcoin and Crypto Wallets for March 2022
- Cryptomedia: Custodial vs Non-Custodial Wallets
- Ledger: The Safest Way to Store Private Keys