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Storing private keys safely has always been an issue. A lot of people, especially those less crypto-savvy, do not take the required necessary steps to secure their wallets. However, a new crypto security technology has emerged that limits the existence of private keys to “a mere fraction of a second.”
How does it work? Unlike other types of wallets, this one does not store private keys on devices where it is installed. When you send or receive a transaction, the private key comes into existence for only a moment and then disappears, thanks to the advanced algorithms behind the tech.
Of course, the entire process is protected by strong passphrases.
Considering how essential private keys are in cryptocurrency transactions today, the extent to which crypto users and exchanges go to keep them protected, and many security threats that still exist, this technology has the potential to become extremely valuable.
Understanding the Difficulty of Keeping Private Keys Secured
With the rise of public interest in cryptocurrency, 2018 has seen an increase in crypto related crimes. According to Chainanalysis January 2019 crypto crime report:
- In 2018, $1 billion in revenue came from the crypto exchanges hacks. This was attributed to two prominent hacking groups alone, with an average gain of $90 million per hack.
- Of the $1 billion stolen, $135 million was converted to other currencies – both fiat and crypto﹘through well established cryptocurrency exchanges.
- In just one traced hack, money was moved up to 15,000 times. On average, money moved by the two groups made around 5,000 jumps.
- Though Ethereum-specific scams saw a decrease in frequency during 2018, scams that took place later in the year were found to be more complex, producing higher value returns amounting to millions per fraud.
Based on this information, we can conclude that the issue is not just about ordinary hacking and thefts. From cryptojacking, Ponzi and ICO scams, to real life “express kidnappings,” the problem is that criminals are getting more creative and their methods are evolving to become more sophisticated.
This is a real concern since the digital nature of cryptocurrency already makes perpetrators difficult to track down and apprehend.
How Do Private Keys Work?
If you’re relatively new to the crypto world or are still considering whether to join the game, it’s important to understand the role of private keys. It will help you to stay safe and not lose access to your wallet.
Used to securely send and receive cryptocurrencies, private keys are comprised of a unique string of alphanumeric characters. Think of them as your unique online signature when signing off on a cryptocurrency transaction.
To better explain their function, imagine you are making an online purchase using Bitcoin. A public key specific to your purchase will be generated from your private key by a highly complex set of algorithms.
Then you will disclose your public key to the parties you’re doing the transaction with. It will be used to send payment to the merchandiser.
Using your private key, you would proceed to grant authorization for the release of funds from your wallet to complete the purchase.
Investopedia, for example, illustrates how private and public keys work by linking private keys to mailbox keys — anyone can deposit into a mailbox, but only the person with the mailbox key can retrieve the content.
Methods of Key Storage
There are various ways to store private keys.
This refers to methods of private key storage on devices that connect to the internet. Hot storage systems give users real-time access to funds but render them more vulnerable to breaches for obvious reasons.
Methods that keep your private keys completely offline fall under this category.
Offline wallets (also called hardware wallets) are the preferred option for many people to store their digital assets, especially if they own significant amounts. Since these hardware devices are not connected to the internet, they are much harder to hack.
This method is considered the most secure way to store private keys, but a downside to it is that using them for transactions could be time-consuming.
Brian Armstrong, the CEO and co-founder of Coinbase, said in a Fortune article that a combination of cold and hot storage is the best option. But the fact remains that hot storage devices are hackable and cold storage methods still face the risk of devices being lost or stolen.
It’s also possible for a cold storage method to fail when important information pertinent to key retrieval is lost, as in the case of exchange Quadriga CX’s $145 million loss.
The exchange’s founder, Gerry Cotten, passed away in December of last year. Along with his passing went the credentials of the offline storage that contained numerous private keys. The investigation is still underway.
What Could This New Technology Bring?
At best, this new “limited existence” method of storing private keys simply makes stealing them more difficult. However, it most likely does not make an impenetrable storage vault yet, because, based on current information, it still appears to be using improved versions of the already existing technology instead of creating a new type of solution.
At the very least, it presents a more secure way of storing private keys, providing increased accessibility to crypto users who either don’t have the time, the resources, or the know-how to implement complex hot and cold storage process combinations themselves.