Cryptocurrency is the most vulnerable investment medium which is prone to security issues, theft, malware attack and loss of data. Attackers are just waiting for avenues and opportunities to steal the private keys associated with the Bitcoin wallets. As private keys are the core of a Bitcoin transaction done from a Bitcoin wallet, attackers are behind the private key.
The knowledge of private key alone is enough for a person to access and perform operations from the Bitcoin wallet. Hence if one looses the private key data, all the Bitcoins in the wallet are at risk. Private keys associated with Bitcoin wallets can either be stored on the web, on the hardware or on printed paper in case of paper wallets.
Private keys become vulnerable from storage media’s in case of cold wallets and communication channels in case of hot wallets. The private key is at the risk of attack even while a Bitcoin transaction is being processed from a Bitcoin wallet. Bitcoin wallet owners need to be extremely cautious while storing and transmitting private keys to and from the Bitcoin wallets.
Taking regular back up of the Bitcoin wallets can help to a certain extent, but there are more secure ways that one needs to adopt in order to prevent misuse of private keys from the Bitcoin wallets.
Cryptography of public and private keys takes place through a mathematical algorithm. A public key is derived from a private key by addressing a set of mathematical operations defined in a set of Elliptic Curve Cryptography (ECC). A public key can be derived from a private key, but a reverse action is not possible in this mechanism as these are based on mathematical trapdoor where a function is easy to perform in one direction but practically impossible in another direction. Hence a public address is derived from a public key and a public key is derived from a private key. The private keys can then be encrypted which will secure the Bitcoin transactions. The user will need to decrypt the private key in order to perform sending or receiving transactions from the Bitcoin wallets.
A highly reliable solution to secure private keys is encryption. Bitcoin wallets or software wallets offer the mechanism to encrypt the private keys. Encrypted private keys will require being decrypted before use, hence even if there is a loss or theft of private keys, if the user is not able to decrypt the encrypted file for the private key, then the private key remains to be safe and unused. The difficulty of the decryption depends on the level of encryption done on the file. The user needs to adopt high standards to encrypt the private key file in the Bitcoin wallets.
The simplest way to encrypt a wallet file is using a password. Another way to perform encryptions is when the private key is encrypted using the master key which is entirely random. The master key is then again encrypted using a key which is derived from a passphrase using the open SSL technology. This is known as multiple encryptions of the software wallets.
As the public and private key pair is mathematically related, what can be encrypted with a public key can be decrypted only with a private key.
Encryption can only reduce the risk to a certain level but not eliminate in total. Cryptocurrencies are at the highest degree of vulnerability in spite of a number of mechanisms involved to protect and ensure safe cryptocurrency transactions. There are newer ways that are being detected that shows different ways in which the private keys are stolen or attacked by malware. Trading and investing in cryptocurrencies requires vast amount of knowledge about the technology and the way transactions are taking place. Amateur users who indulge in cryptocurrency trading and investments often end up losing all of their money. Hence one is advised to take precautions and adopt secure means while dealing in cryptocurrencies.