How to Manage Blockchain Private Keys and Recovery Phrases: Protecting Your Assets Securely

As of 2023, there are over 1,000 blockchain networks listed on CoinMarketCap, covering not only Bitcoin and Ethereum but also a wide range of other blockchains, including networks created through Layer 2 solutions. This diversity means that each blockchain uses unique private keys and addresses, and within a single blockchain network, users can have multiple keys and addresses. With so many private keys, how can they be conveniently managed within a wallet? In this blog, we will explore private keys—the unique proof of ownership in blockchain networks—and recovery phrases (often called mnemonic or seed phrases) that are essential for managing and securing access.

What is a Private Key in Blockchain?

In blockchain, a private key is the essential information that allows a user to own and control digital assets. The private key is a unique string generated using hash functions and encryption algorithms, and it pairs with a public key. A private key must be kept strictly confidential, as it grants the user the authority to transfer assets or execute smart contracts.

Typically, a private key is a 256-bit number, meaning there are approximately 10^77 possible keys. This number is so large that it’s practically incomprehensible; no person or computer could attempt all possible combinations. For perspective, the estimated number of atoms in the observable universe is around 10^80, comparable to the total possible private keys. This makes guessing or brute-forcing a private key nearly impossible. The security of blockchain rests on this vast number, making it essential for users to manage their private keys securely.

How to Generate a Private Key

Private keys can be generated in various ways, depending on the platform the user is using. Typically, private keys are created through wallet applications or key generation software. Here are some common methods for generating a private key:

A. Generation through Cryptocurrency Wallets

Most cryptocurrency wallets have built-in private key generation functions. When a user creates a wallet, the wallet software automatically generates a private key along with its corresponding public key.

Common cryptocurrency wallets:

• D'CENT
• MetaMask
• Trust Wallet
• Ledger
• Trezor

These wallets typically display the generated private key not as a string of random letters and numbers, but in the form of a 12- or 24-word mnemonic phrase (or seed phrase) that is easy for users to recognize and store.

In other words, the 12 or 24 recovery words displayed in the wallet represent the private key. These words are essential for private key recovery, and users should store them securely.

B. Generation via Developer Tools

Developers often use programming languages and libraries to generate private keys. Libraries such as Python’s ecdsa and bitcoinlib provide functions for generating private and public key pairs. For instance, here’s a method to generate a private key using Python:

from ecdsa import SigningKey, SECP256k1
private_key = SigningKey.generate(curve=SECP256k1)
print(private_key.to_string().hex())

This approach is useful for developers and advanced users and is commonly used when software developers integrate private key generation functionality into their applications.

Recovery Phrase / Mnemonic Phrase / BIP39

When using multiple blockchains, managing private keys becomes challenging for users, necessitating a standardized, easily recoverable way to generate keys. To address this, all keys created within a wallet can be derived from a single piece of information called the master seed. A seed phrase translates the master seed into easy-to-read words, so as long as the user knows these words, they can recover their wallet even if it’s lost, and even recreate the same wallet in another application using the same recovery phrase.

Modern decentralized wallets support 12- or 24-word phrases (or secret phrases). Generally, the more words in the phrase, the stronger the security. The order of the words is also crucial; if the order is changed, a different key is generated, making wallet recovery impossible. The most widely used method to create a recovery phrase is #BIP39 (Bitcoin Improvement Protocol 39). Proposed by the Bitcoin development community, BIP39 enables wallets to securely store and easily recover private keys.

When a mnemonic phrase is input under BIP39, it generates a unique seed. This seed is used to derive private keys in a cryptocurrency wallet, enabling users to create multiple addresses from it. Here’s a brief overview of how BIP39 operates:

• 1. Entropy Generation: First, random data called entropy is created. The entropy size ranges from 128 bits to 256 bits. The greater the entropy, the longer the mnemonic phrase.

 

• 2. Checksum Addition: A checksum bit is added to the entropy to ensure data integrity. This checksum is based on the hash of the entropy, allowing for error detection if incorrect words are entered.

 

• 3. Mnemonic Phrase Conversion: The entropy (with checksum) is divided into 11-bit sections, which are then mapped to words from a list defined by BIP39 to create the final mnemonic phrase.

 

• 4. Seed Generation: When the user enters the mnemonic phrase, the PBKDF2 algorithm generates a seed, which can then be used to derive multiple wallet addresses.

How to Safely Store a Private Key

As explained above, it is nearly impossible for a third party to randomly guess or access a private key. However, unfortunately, many users fail to manage their private keys securely, leading to cases of keys being leaked or stolen. If a private key is lost or exposed, all assets controlled by that key are at risk. Therefore, securely storing your private key is essential. Here are some recommended methods for private key storage:

• Using Cold Storage: Cold storage keeps a private key offline. This involves generating the private key in an environment disconnected from computers or online networks, then storing it on a USB drive or a hardware wallet like D'CENT. Additionally, the 24 recovery words or mnemonic phrase created during the hardware wallet setup should be kept offline and away from unauthorized access to protect the private key.

 

• Paper Wallet: A paper wallet involves printing the private and public keys on paper for offline storage. While paper wallets have the advantage of being immune to hacking, they are susceptible to physical damage. To store a paper wallet safely, consider keeping it in a waterproof, fireproof environment.

 

• Multisignature Wallet: A multisignature wallet requires multiple private key signatures to access assets. This setup can prevent asset loss in case a single private key is compromised.

How to Recover a Private Key

If a private key is lost, there are very few ways to recover assets. However, recovery is possible in certain cases. Here are some methods for private key recovery:

• Recovery through Recovery Words: Most wallets provide a set of 12 or 24 recovery words. These words function as the seed used to generate the private key and can be used to recover it. Therefore, mnemonic phrases should never be shared with others and must be stored securely.

 

• Recovery through Wallet Backup File: Some wallet software allows users to back up their wallets. These backup files store encrypted private key information, so if you have the file and the recovery password, you can restore the wallet. However, if you lose the backup file or forget the password, recovery becomes difficult.
• Hardware Wallet Recovery: Hardware wallets can also be recovered using the mnemonic phrase. For example, if a user loses their D'CENT wallet, they can buy a new D'CENT wallet, enter the same recovery words, and recover the private key and assets from the original wallet.

 

• Key Splitting: Advanced users can use key splitting techniques to recover a private key. Key splitting involves dividing the private key into several parts and storing each securely. When needed, the separate key fragments can be combined to reconstruct the private key.

Precautions and Mistake Prevention in Private Key Management

• Avoid Public Wi-Fi: Accessing private keys over public Wi-Fi networks is highly risky. Due to the increased risk of hacking, private keys should only be accessed on secure networks.

 

• Avoid Copying and Pasting: Copying private keys to the clipboard can expose them to other applications. Avoid this whenever possible to protect your key.

 

• Never Share Your Private Key: The most important rule is to never share your private key with anyone. If shared, others can gain access to your assets.

Conclusion

The private key is the only element that proves ownership of digital assets, making it crucial to understand how to generate, store, and recover it securely. By choosing a secure wallet based on individual needs, thoroughly safeguarding the recovery phrase, and preventing private key exposure, users can manage their blockchain assets safely. Additionally, hardware wallets like #D'CENT offer an advanced security feature called the #Secret Phrase, allowing users to add an extra word to the standard 24-word seed phrase to create a completely new private key. This means that even if someone gains access to the seed phrase, they cannot regenerate the same wallet without knowing the 25th word. This secret phrase, chosen by the user, can be up to 8 characters long with numbers and letters. Since the user creates this phrase, it’s important to select a memorable word carefully.