By Lumai Mubanga. [email protected]
Depending on your level of involvement in the Bitcoin ecosystem, you surely should have either a hot or a cold wallet to conduct transactions. Sending and receiving bitcoins into your wallet requires that you generate a private key were you will receive the bitcoins.
Recall that, to successfully transact, you need two types of keys, the bitcoin address, and your private key. Both are Virtual identities. To secure our identity, we need to secure our private keys. Actually, the private key is what unlocks the virtual identity. Losing the private key (Wallet ID), means the loss of your coins. It gives access to the bitcoin address, (Public Key). The question arise. How do we protect these private keys and secure them against identity theft for example?
Your wallet helps you manage these two identities! For the brain and paper wallets, it may be simple but it becomes complicated with software wallets.
There are basic safety and best practices recommended when using or generating private keys. The online software wallets are designed to generate public and private keys for purposes of sending and receiving bitcoins.
Generally, it is considered best practice never to reuse pseudonyms. This entails generating a new private and public key each time a transaction is to be made. The advantage of doing this is that, it becomes difficult for others to determine how much bitcoins you own. It also makes it difficult to determine what you spend your bitcoins on. This is in line with the very nature and design principles of cryptocurrencies – privacy.
The second advantage lies in the security aspect of keeping your coins safe. Imagine what would happen if you did not generate a separate private and public key pair for each transaction associated with your identity, and you suddenly lose your private key. All your funds will be gone. It is therefore a recommended best practice to spread all your funds in separate or multiple identities. Remember the old adage of keeping all the eggs in one basket? The same old principle applies to the security of bitcoins.
Keep in mind that your private keys are just random numbers with no relation between them. Therefore, compromising one key is truly independent of the other. It would be prudent therefore to always generate new public and private keys because the whole process of generating them is easy.
Applying these simple but powerful procedures in handling your cash will potentially save you much headache and improve your user experience. The software generally handles this efficiently and you will do well to make use of it.
Complying with this is a simple way to practice best practices.