Public and Private Keys: FAQs Answered

Private Key Storage Options

When it comes to private key storage, choosing a custodial or non-custodial solution is a personal decision. For many, it comes down to whether you trust yourself with the responsibility (of not losing your keys) more than you trust a third party. Some choose a combination of the two, keeping some funds on exchanges and others in personal custody. Regardless of your choice, be sure you’re following best practices when it comes to securing your private keys or your exchange account. Let’s consider some frequently asked questions (FAQs) about public and private keys.

What Does It Mean to Hold Your Private Keys?

Holding your private keys means that you are in control of your keys. Not only do you control your cryptocurrency, you’re also responsible for its security. “Not your keys, not your coins” is a common phrase you might have heard from proponents of this solution, meaning that if you don’t personally hold your own private keys, you can’t truly be sure that you own and control your cryptocurrency assets. Most cryptocurrency wallets now give you control of your private keys through a seed phrase that must also be kept secret.

Can I Own Crypto and Not Hold My Keys?

Yes, and millions of cryptocurrency investors do. If you keep your cryptocurrency on an exchange, you are trusting that exchange to keep your private keys — and by extension your cryptocurrency — secure on your behalf. They are “holding” or keeping custody of the public and private keys for you, either in a hot wallet with intermingled funds from all their customers, or in cold storage, where your crypto and keys are distinctly separated and segregated.

Can Anyone Generate My Private Keys? Do I Need to Generate My Own Private Keys?

No one can generate your private keys if they don’t have access to them or the accompanying seed phrase. That’s why keeping your private keys and seed phrase confidential is of utmost importance. Usually, when you create a wallet, you’ll be asked or required to generate a seed phrase. This should be written down offline and kept private.

This seed phrase would allow you to “regenerate” your wallet and private key should you ever lose them. Many recommend that you make a few copies of your seed phrase neatly in pen and store them in secure locations. Some break this phrase in two parts and store them separately for extra security. You can also laminate the paper note that contains the seed phrase, or  purchase a seed phrase back-up device that will stamp your seed phrase in steel.

What if I Lose My Private Keys?

If you lose your private keys, you could lose access to your funds. However, losing your cryptocurrency wallet or private keys doesn’t necessarily mean you’ve lost the funds. The funds were never “in” the wallet or private keys to begin with; they’re still recorded on the blockchain. These keys just prove that you are the owner of the funds. If they’re lost, that seed phrase you’ve safely stowed away is the only way to recover your private keys; with it, you can regenerate the private keys in a new wallet. After you recover your keys, you can continue to buy and sell cryptocurrency.

Can I Make my Own Private Keys?

Yes, and you do not need a digital wallet to make them. It is possible to make your own private keys in a low-tech way that is sufficiently random, such as recording a large series of dice rolls. You can also use a website such as Bitaddress, which will generate the public and private keys for you as hexadecimal addresses and Quick Response (QR) codes. You can also print these addresses and use them to create a paper wallet, a type of non-custodial cold storage wallet created by printing private keys on a piece of paper.

Most would argue against storing large sums of cryptocurrency this way. People usually create paper wallets with small amounts of crypto to give as gifts, perhaps to interest others in cryptocurrencies. Other people make them to learn or simply for fun.

HD wallets, or hierarchical-deterministic wallets, do a great job of securing your funds, and you don’t need to be an expert to use one. An HD wallet generates new cryptographic key pairs or addresses from a master key pair each time funds are received. HD crypto wallet technology ensures that private keys are almost never handled, or even seen, by the user. The user will usually be given a 12-, 18-, or 24-word seed phrase that encodes the same information as the private keys.

Should I Hold My Private Keys?

Deciding whether you should hold your private keys depends on how you use cryptocurrency, how much crypto you have, your risk tolerance, and how much individual responsibility you want. Your personal philosophy may also play a role. In general, you generally don’t hold your keys if you:

• Don’t want to “be your own bank”

• Feel more comfortable trusting a custodian with your cryptocurrency instead of yourself 

• Don’t want the responsibility of securing your private keys and recovery phrase

• Don’t worry about counterparty risk

If you don’t hold your own public and private keys, you are trusting the exchange in the same way you’d trust a bank or vault to store your funds. Those who want to hold their own keys generally:

• Want to be their own bank

• Worry about counterparty risk

• Feel more comfortable trusting themselves rather than a third party

• Prefer the idea of holding their own public and private keys

If done properly, holding your own public and private keys can be more secure than storing any physical asset anywhere else. Key holders generally like the idea of “being their own bank” and controlling their funds. At a fundamental level, you’re in full possession of your cryptocurrency.

Importantly, if you lose your private keys and recovery phrase there is no recourse: They’d be inaccessible not only to yourself, but to everyone else as well. Although a sunken ship full of gold may someday be recovered, there’s no equivalent way of using cryptographic sonar to find your private keys. They’re sunk for good, and your funds are submerged with them. If you forget your exchange password, on the other hand, there’s usually a simple way to reset your account.