In the cryptocurrency market, trading account security has always been a matter of the utmost concern. Exchanges constantly make an effort to come up with new solutions that improve and enhance security efficiency, build credibility in the market and attract new users.
Two of the first steps to set up security when creating a trading account are private key and passphrase. While the passphrase unlocks access to the account, the private key is connected to the crypto asset to authorize the transaction.
Therefore, in order to understand the buying and selling process of cryptocurrency transactions, investors first need to distinguish between private key and passphrase. Let’s find out in the following article!
What is private key?
Private key is string of random alphanumeric characters to connect to a crypto address, allowing users to access and manage accounts and make transactions.
Private keys can have the following formats:
- 64-digit hexadecimal code.
- The binary code is 256 characters long.
- Mnemonic phrase
- QR code.
For example: 5fb1844a1e7d4f328d305f28b22b642e7e86110a0fec9245d126e74627
Users will be provided with public key and private key when making their first crypto transaction. Public key represents user’s address allowing all other traders participating in the network to send tokens to the wallet, while traders uses private key to decrypt data and confirm transactions.
To put it simply, public key serves as bank account number that you can share with everyone, while private key is similar to a password to log in and access a bank account, used to deposit and withdraw money.
For example, M and N make transaction to buy and sell ETH. After receiving public key of N (receiver), M (sender) uses this public key to encrypt the transaction and transfer 1 ETH to N. N will then use the private key to decrypt the transfer and confirm the transaction.
>>> Related: What is API key?
What is passphrase?
Passphrase is a collection of 12- to 24-word phrases to secure accounts and restore crypto wallet in case users are unable to access their wallets.
For example: lesson white nice sun decade tone flash ear narrow cherish cut home
Difference between private key and passphrase
Both private key and passphrase help improve the security of accounts, granting users access to crypto wallets. However, they have certain differences.
|Encrypted character strings include: lowercase, uppercase, interchangeable and mixed digits||Set of English words arranged randomly, from 12 to 24 words|
|Complex and difficult to remember||Readable, easy to remember|
|Create an address that allows making transactions in the wallet||Create and restore crypto wallet, users can use passphrase to recreate private keys|
|Represent a single wallet||Represent various wallets, it is possible to create and control a wallet containing multiple private keys|
For example, when creating a new wallet for the first time on MetaMask, users will be given both private key and passphrase. Then, if you want to create subsequent accounts from this wallet address, users will use different private keys corresponding to each account, but all accounts created in the same wallet have the same passphrase as the original.
When users downloads MetaMask on other server, the user needs to enter and confirm the passphrase. They can still access the accounts without private key.
However, if you want to log another wallet to the MetaMask of the wallet address you are using, you need to enter a private key, not a passphrase.
>>> Related: What is MetaMask? Most popular crypto wallets
When to use private key? When to use passphrase?
- For the main wallet which is used to store assets, not to interact with multiple DApps, users need to secure passphrase and private key carefully.
- In case a main wallet creates multiple subsequent wallets that do not store large capital, only interact with multiple DApps, the user only needs to save the passphrase.
Where should private key and passphrase be stored?
Users can store online on hot wallet for easy access and convenience in buying, selling and trading crypto assets.
Therefore, selecting platforms with good reputation and security features is extremely necessary to minimize the risk of attacks from hackers.
For example, Electrum wallet, Breadwallet mobile wallet or some leading exchanges such as Coinbase have provided virtual wallets to help users manage private key and passphrase.
Private keys and passphrases can be backed up on the computer’s folders, then you can set a password when accessing the folder to add security.
Besides, users can choose to store on USB, take notes and store them in a safe place,… Such cold wallet storage helps the user’s account avoid the attack of hackers, but that makes the transaction process less convenient.
Note: It is not recommended to take screenshots and store them in the photo folder because the risk of malicious code intrusion is very high.
>> Related: Cold wallet, hot wallet: Concept, pros and cons
If the private key and passphrase are lost, the user will not be able to recover them and the encrypted file can’t be used. Therefore, users should be absolutely careful in security and note some of the following information:
- Do not share and disclose to anyone.
- Do not enter private key and passphrase on any malicious links or applications, avoiding the risk of personal data leakage.
- Remember the private key and passphrase in your own way. Users can create storage methods by changing some characters or replacing them with synonyms and antonyms in case hackers exploit the storage devices.
- Set up additional layers of security: Different wallet applications will provide different layers of security with various options that users can install to protect their assets such as Finger Print, Face ID, Matrix password, PIN code,…
Passphrase and private key are the keys to help secure cryptocurrency accounts safely, limiting the risk of attacks and account intrusions.
Blockchain is gradually replacing traditional financial systems, and cryptocurrencies have become a trend that attracts the top concern of investors. Therefore, it is extremely necessary to equip with sufficient knowledge and careful investment strategies.
Hopefully, through the above article, users can get a better grasp of security methods as well as how to store passphrase and private key in the most secure way.