Here at Lunie we build tools that offer advanced features for experienced cryptocurrency and blockchain users that should be simple enough for you to show your friends and family how to operate. With that, the bit of information that we never hesitate to nail home when communicating with users is: managing your keys is critical and we help you do it simply and securely.
Private Keys - What Are They?
Broadly applicable to pretty much every blockchain based cryptocurrency, what are often referred to as “keys” are better understood by referring to them as private keys and public keys. To learn more about the intricacies of cryptography and how private and public keys work, we suggest the following reading material.
With blockchain based cryptocurrencies that are not held by a custodial wallet (Coinbase, Kraken, Binance, etc) you have in your possession private key and public key pairs. They are named appropriately because your public key is something you could share with the world and not risk losing your funds whatsoever. With a public key, you can normally only send funds to that address, sort of like a mailing address or a bank account number. However you cannot initiate any transactions with it. For that, you would need a private key.
To each public key, there is a private key which allows you to cryptographically prove you are the owner of an account and among other things, sign transactions and send value to other accounts. A simple analogy might be, if you had someone's full credit card number, the expiration date, and security code, you could spend the card’s funds however you pleased.
With cryptocurrency, this process is peer to peer. If you have a private key, public key pair, you cannot be stopped from issuing a transaction from that account. On the other hand, when you have a fraudulent transaction appear on a bank account or credit card, you can dispute it, get a chargeback issued or have your funds insured against loss. This isn't possible with cryptocurrencies as blockchains cannot be changed once appended. This is one of the most powerful and important things to understand about cryptocurrencies and blockchains.
Lunie produces a 24 word backup code when creating accounts on any of our app suite products. This 24 word seed phrase not only restores associated accounts on Lunie apps, but also anywhere else 24 word seed phrases are used with wallets, including Ledger devices.
A private key is typically a long string of characters, most often numbers and letters. When you are in control of your keys, nobody else should ever see your private key. Some centralized services and exchanges will control your keys on your behalf, similar to the custody model we are used to with banks. There are pro's and con's to this, that we won't go into right now. A notable drawback in terms of usability is that private keys are often not very easy to memorize. Here’s an example of a private key:
With this in mind, some cryptocurrency wallets will allow you to export something called a backup code, or backup code, which is cryptographically derived from your private key.
This means, you can be given 12-24 words which will be associated with your account and can access your wallet information and private keys from anywhere. Furthermore, if you have a backup code associated with a wallet on your laptop, and you record it and save it properly, you could throw your phone into the ocean and never see it again and go home and restore your wallet, all its funds and information on a new phone or computer just with this backup code. This can all be done without trusting any central party to re-issue your funds or know anything about you.
Hardware Wallets (Ledger Nano Devices)
If you want to use secure, offline hardware devices which can store and manage your cryptocurrency, they are also backed up similarly by backup codes but enable more versatility by operating with online applications without revealing private key data off of the device. When they’re not plugged in and enabled, hardware wallets are entirely offline, shut off and much less susceptible to attack than most other wallet solutions.
There’s a level of inconvenience to using hardware wallets for frequent transfers or signing of transactions, but this is more a feature than a flaw, which is why Lunie also offers you a browser wallet which you can manage smaller amounts of funds on more easily.
Think of the browser wallet vs. hard wallet wallet concept of having some spending cash in your pocket at all times (browser wallet), but not carrying around a fireproof safe handcuffed to your wrist (hardware wallets).
Operational Security and Information Security Best Practices
While the number of techniques to keep your privacy and wealth preserved through Operational Security and Information Security are endless, we’ll provide a list of Do’s and Do Not’s for you to keep in mind as you use Lunie and any other cryptocurrency wallet you may encounter in the future:
- Keep redundant copies and backups of your private keys and backup codes
- Have a mix of physical (paper, engraving, etc) backups as well as digital (thumb drive, air-gapped hard drives or laptops) as backups
- Create a social web of backup information that your loved ones can access in case something happens to you
- Regularly cross check your records to make sure your information stored matches
- Check SSL certificates on every single website before you enter information
- Make sure none of your information is stored in a way that would be accessible to someone who was able to do a sim-swap porting of your cellular phone info
- Show anyone you would not trust with your life savings your private keys or backup codes
- Store your private key or backup code in plain text, unencrypted files on your computer or in the cloud
- Paste your private key or backup code into a website you are not 100% certain is valid and secure
- Share your private key or backup code over email or chat with anyone - nobody should ever ask for this. Not even support people