Unlike traditional financial systems, cryptocurrency is managed with cryptographic keys. Users holding cryptocurrency are entirely responsible for the security of their assets. Cryptocurrency is sent and received using public and private keys similar to how a bank account functions with a public routing number and a private username/password.
Public and Private Keys
Although comparable to bank transactions, cryptocurrency transactions are not as straightforward. For example, if someone wants to send you some crypto, they will need an ‘address’ that belongs to solely you. You would send them your public key, just as would send your routing number for a direct deposit. If you accidentally sent them your private key, you would be handing over complete control of that wallet’s assets; just like giving out your bank account password to anyone that sends you money.
According to Investopedia, “A private key is a large, randomly-generated number with hundreds of digits. For simplicity, they are usually represented as strings of alphanumeric characters.” Crypto holders will see their public and private keys as indiscernible strings of letters and numbers, making basic memorization nearly impossible. Maintaining your account data requires an external solution known as a cryptocurrency wallet.
Crypto wallets store your private keys for you, allowing you to safely send and receive cryptocurrency. Unlike a bank account, the crypto wallet isn’t technically holding your funds. Cryptocurrency allotments are stored on a blockchain (a distributed database of records) which acts as a public ledger of transactions. The blockchain tracks every amount sent and received, and before a transaction can be logged onto the ledger, it must be verified by peers within the network which are scattered across the world.
Crypto wallets come in different forms such as paper, digital and online. A paper wallet is simply a physical piece of paper with your public and private key information printed in string or QR format. This method may seem the most physically secure, although if there is no backup for the wallet and the physical piece of paper is lost or ruined, then access to the cryptocurrency will be lost forever. A hardware wallet serves the same purpose although data is held on a physical device similar to a USB drive. Hardware wallets make it easier to maintain assets and connect with the internet, although they run the same risk of being lost or stolen. The remaining option is a digital or software wallet. These wallets store data on your computer with no physical device, although
in many cases use a simple login and password to access data. Many digital wallets today also have the benefit of generating a multi-word backup phrase based on public and private keys. These added layers of security are much more user-friendly than remembering the cryptographic keys themselves, although are less secure than physical options.
Michael Cobb at TechTarget states, “…as the value of a bitcoin has increased, so too has the number of viruses designed to steal bitcoin from wallets, as well as cyber attacks against exchanges.” As the adoption of cryptocurrency rises, wallets are innovating new security measures to combat the increasing threat of malicious activity. Multisignature wallets and key management systems offer several layers of security by implementing all three types of wallets in one. Casa is at the forefront of this innovation with the world’s first personal key manager. Instead of maintaining your key on one platform or device, Casa Multisig protects your bitcoin with multiple keys, each stored on a separate device for extra protection. Beyond bolstering bitcoin security, it provides the user with a backup key in the event one of the passwords is lost. Imagine you only have your password saved to your mobile device–if you forget or lose it, your Bitcoin is gone. With multi-sig, you have the added comfort of knowing your keys are saved on a hardware wallet, Casa wallet, and mobile device. Effectively, you are diversifying your risk and eliminating the high chance of fraud with a simple, multi-step signature. Similar to two-factor authentication on banks or email, it’s far more difficult to hack someone’s email if you don’t have access to their phone.
No one says you have to use a key manager or multi-signature software, but in terms of mitigating risk, it could be the best crypto decision you make.