This year, Cryptocurrency has reached the new mainstream adoption level. However, most people have never bought Cryptocurrency. And many buy some Crypto coins for the first time this year. After buying several coins. Usually, beginners directly use any wallet for storage. Without studying one by one that not all wallets are the same.
One of the most frequently repeated phrases in the cryptocurrency community is “not your keys, not your coins”, which means that if you store coins in the app but do not control your “private keys”. Then you really don’t have it in its entirety. Cryptocurrencies are store in the application. Many “wallets” are not very transparent about how they work, and I don’t think many people reading this article understand the exact meaning of this phrase. Let’s describe it in detail.
What Is a “Key”?
When a friend sends you money from a platform, they will use your email address to find your account. Just like they can make bank transfers to specific accounts. When someone sends you some bitcoins, they need your recipient address. Which is your public key. This public key can send to anyone. As it only allows other people to send you coins. Not to the point of having access to it instead of taking it.
Every Ethereum account must have a public key pair and a private key that was generate when the account was create. The private key allows a person to access the funds associated with the account. So your private key is similar to your bank account password; if someone wants to access your private key they can easily move all your coins.
Fortunately, private keys are more difficult to hack. Compared to traditional passwords, password cracking is usually just a rough guess. Because they are large random numbers, which are very impossible to guess. In many estimates, a brute force guess of an active Bitcoin address will take longer than the current age of the universe.
Where Are The Coins Actually Store?
When you download the first wallet app, you can choose to import or generate your keyphrase or seed. If you generate a new key, you create a new Ethereum account. And your key points to your transactions on the blockchain. This account is on the Ethereum blockchain and has nothing to do with a wallet, which means you can take your keys and import them into many other wallets, and control your Ethereum from any of them.
A wallet is an application created to help you interact with various encrypt account. The wallet doesn’t store your coins, it stores your coin keys; your coins will always be “stored” on the respective blockchain network. If you are not familiar with the way blockchain databases store data in the timeline.
Many wallets will generate a seed phrase instead of giving you your private key right away. This seed phrase is not your private key. Conversely, if you can’t access your wallet, it can use to get your private key. Suppose I dropped the phone and it was completely broken.
At first, I panicked because my favorite Ethereum wallet was only on my phone; however, since I printed out my mnemonic phrases and kept them safe, I was able to switch to a new phone and download my favorite wallet app program and use my mnemonic phrases to recover my private keys.
Visiting and owning coins
We started this article by discussing the phrase “not your keys, not your coins”. So under what circumstances can we not control our locks?
When someone wants to buy some Ethereum for the first time, they might go to an exchange like Coinbase, Kraken or Gemini. If I login to Coinbase and buy 100 USD Ethereum, it is automatically stored in my wallet which is inside the Coinbase app. But this is not a traditional wallet, because when you create a Coinbase account, they won’t give you the key; wallets at Coinbase are custodial, which means they control your keys and control your coins through associations. This means that you actually only “access” your coins when you log into Coinbase.
I know, you may think I’m paranoid; Coinbase is a large public company, are they sure they are responsible for my coins? Even though the exchange has grown substantially, making it less prone to failure, allowing an exchange to hold your tokens will beat the cryptocurrency core tenants. The hallmark element of blockchain is decentralization; it was almost impossible to attack anyone because there was no central control point to launch an attack.
In the past, exchanges have collapsed and been hacked. A famous example is Mt. Gox, the Bitcoin exchange that managed more than 70% of Bitcoin transactions in 2014. Gox Mountain was hacked and 850,000 bitcoins (mainly owned by its customers) were stolen. They soon shut down, and over the next few years, mismanagement, fraud, and theft led to the loss of nearly 10% of the global Bitcoin supply.
Although today’s exchange is more powerful and subject to intense scrutiny than Mt. Gox, they are still the central point of control, exposing them to many of the problems faced by Mt. Gox and the traditional financial system. No company is immune to hacker attacks or mismanagement.
Hopefully, this article will help clarify how cryptocurrencies are stored and give you some practical advice for storing your coins more securely. Consequence adoption of Cryptocurrency is still in its infancy and development.
If you plan to hold it for a long time, it is very important to keep your assets safe. Remember, it doesn’t matter what wallet you end up using. Make sure to store your seed phrases safely in some safe location on paper or whatever.