What Are Private Keys, and How Can You Keep Them Safe?

2023-05-10  •  5 min read

In the world of cryptocurrencies, private keys play a pivotal role in enabling users to securely sign transactions and generate addresses through which they can receive digital assets. A private key is a long string of alphanumeric characters that serves as a digital signature for transactions. These characters are essentially secret codes that help prove ownership of a particular crypto wallet, which allows the owner of that wallet to send or receive digital assets.

Private keys are mathematically linked to public keys (the public-facing addresses used to send or receive crypto assets). While these public keys are derived from private keys, they are not used to sign transactions nor control crypto wallets. To better understand how private keys and public keys work, it's important to understand the concepts of cryptography first.

Understanding public-key cryptography

Cryptography is the practice of secure communication among multiple parties, and is used to protect data and prevent unauthorized access. In the context of cryptocurrencies, cryptography is used to:

  • Ensure that data cannot be accessed by unauthorized parties

  • Ensure that data cannot be altered or tampered with in transit

  • Ensure that the parties involved in a transaction are who they claim to be

One of the key ways cryptography is used is through public-key cryptography (PKC), a cryptographic system that involves two keys: a public key and a private key.

Public key vs. private key

The public key is used to generate a public address through which digital assets are either sent or received (i.e. your crypto wallet). The private key, on the other hand, is used to sign transactions, prove ownership of the digital assets and authorize the transfer of those assets.

When a user sends any cryptocurrency to another user, they create a transaction that is signed with their private key. The transaction is broadcast to the network, where it is verified and confirmed by other network participants. Once the transaction is confirmed, the recipient can access the transferred assets using their private key.

The security of public-key cryptography relies on the difficulty of reversing the algorithm used to generate the keys. It is impossible to generate the private key from the public key, which means that the private key remains secure as long as it is kept secret.

How to keep your private key safe

A user’s private key is used to generate a digital signature that is then used to verify and validate the transaction. Without the private key, it is impossible to access or transfer cryptocurrency funds. As such, it is crucial to keep crypto private keys safe from theft, loss or damage. 

There are several ways to keep them safe based on the type of custody solutions your institution is relying on to safeguard its digital assets.

Best practices for keeping your private key safe on your own

Hardware wallet

A hardware wallet is a physical device that stores your private keys offline. If you choose to self-custody your digital assets, a hardware wallet is one of the safest ways to store your private keys, as it provides an added layer of security and protection against hackers and malware.

Ceffu uses air-gapped FIPS 140-2 hardware devices to store clients’ key shares (different bits of a private key distributed in various geographical locations to reduce any single point of failure).

Use a strong password

If you're using a software wallet, make sure to use a strong and unique password that is difficult to guess. You can also use two-factor authentication to add an extra layer of security.

Do note that with self-custody solutions, the full responsibility of your private key’s security falls upon you, and that losing your private key would result in the irreversible loss of your digital assets.

Never share it

Never share your private keys with anyone, and don't write anything down on a piece of paper that you may leave behind for others to see. 

How Ceffu secures your private key

Multi-party computation (MPC)

Ceffu’s wallet infrastructure runs on MPC technology – a cryptographic method that enables multiple parties to jointly compute a function on their private keys without revealing their keys to each other. This is done by splitting a client’s private key into (m) key shares, which are stored on hardware devices distributed across different geographic locations. 

Once a client’s governance control requirements have been met (i.e. their Multi-Approval Scheme or Transaction Approval Policy), the transaction approval will be sent to all relevant parties holding a key share, which will then be broadcast on the blockchain. With MPC, the computation is designed in such a way that it only reveals the final output, without revealing any of the parties' individual inputs. This removes any single point of failure in the event one of the key shares is compromised, thereby optimizing the security of your account. 

Technical and risk management expertise

Entrusting the security of your digital assets with our institutional custody platform means you need not worry about the responsibility and risk of managing your own private key. Our compliant and audited infrastructure, backed by our team of technology, security, and risk management experts, provides clients with peace of mind that their assets remain safe.

Independent audits

Ceffu’s solutions are ISO 27001 and 27701 certified, as well as SOC 2 Type 1 and Type 2 attested. These security examinations are conducted by independent third-party auditors to ensure our platform has all the necessary internal controls in place, thereby affirming our commitment to information security and privacy protection.

Secure your institutional crypto assets

For more information on Ceffu’s private key security measures and other relevant questions, please contact our designated Account Managers by filling out our institutional form.