One of the most highly praised and hyped aspects of blockchain technology is its security. With blockchain, it’s possible to build decentralized digital networks that are highly resistant to fraud, hacking, and corruption.
The way this works is largely thanks to the powerful encryption the technology uses. The only way to gain access to your data in a blockchain is by using a personal key to unscramble the encrypted data.
With cryptocurrencies, the only way users can buy, sell, transfer, or do anything at all with their coins is by using their private key to authorize the transaction. In other blockchains, these keys can be used to grant temporary access to other parties, for example to verify identity or share confidential information.
This is done by using the private key to generate a public key, through which the other party can access the data and take part in the transaction.
This system is generally highly secure, and if users are responsible with their keys and keep them safe then it’s virtually impossible for third parties to access their data without their consent and knowledge.
That’s a wonderful thing, but it can also be a bit of a mixed blessing in certain circumstances. For example, if you lose or forget your key, you’re locked out. It’s that simple — without your key, you might as well not own any cryptocurrency or be part of any blockchain.
As you can imagine, then, losing a key is a pretty big deal. Worse still is the possibility of having your key stolen, allowing a hacker access to your private information and possibly large amounts of money.
So how can we protect these keys? And what are the options if they do get lost?
Avoiding a worst-case scenario
Blockchain provides an excellent case study for the importance of cryptographic key management in general. To start out, let’s explore some of the strategies that will help cryptocurrency users keep their private keys safe. One of the most important steps anyone can take is to be careful about where they store their keys. For most of us, this will be inside a wallet.
Contrary to what many people believe, cryptocurrency wallets don’t actually contain any coins. Instead, they hold the keys necessary to conduct any kind of transaction and manage your digital currency.
That means choosing a secure wallet is a serious matter. Some are famously vulnerable to hacks, while others are downright scams. It’s important to do your homework here.
Online wallets are the least secure, because they’re more vulnerable to hackers and cyber crime due to their connectivity. A safer alternative is to store your wallet on a computer hard drive or, even better, a removable drive.
Some users prefer paper wallets. With these, your encryption keys are printed off onto a physical sheet of paper, which can be stored wherever you want. Unless hackers can enter your home and steal it, your key will be safe. Just make sure not to lose it!
A third option is to use third party hardware to manage your wallet. This includes devices like the one by Trezor, which manage access to your wallet and take care of security concerns. They’re pretty much immune to cyber threats and are highly secure. However, if you forget your login details, you’re almost completely out of luck.
Meanwhile, there are plenty of other developments in the pipeline to help users manage their keys more securely, for example by using biometrics like fingerprint scanners to allow access to keys.
It’s hard to say exactly what the future will bring. Blockchain is still a new technology, and as it evolves we may well move beyond the encryption key model to something more secure and less susceptible to human error.
For now, though, the single best thing any blockchain user can do is keep their keys in a secure, physical location that they can easily access.