I have the key; I Have The Secret – Unlock Cryptocurrency Control – Legal Updates from Shoosmiths | Omd Cialis

This article examines the importance of protecting your cryptocurrency investment by having access to the “private key”. Without it, you are not really in control of that cryptocurrency and cannot prove that you are the true “owner” of it.

Crypto, cryptocurrencies, NFTs, blockchain – exciting, enticing and fast becoming a preferred source of investment.

But buyers beware! Are you really the true “owner” of your cryptocurrency?

Whether you’re a full-fledged crypto investor or just considering diving into this world, this article explores the importance of protecting your cryptocurrency investment with “private key” access. Without it, you are not really in control of that cryptocurrency and cannot prove that you are the true “owner” of it.

It is no secret…

The facts and figures speak for themselves. Crypto is huge and impossible to ignore. Currently, in mid-2022, there are well over 18,000 cryptocurrencies in circulation. It should therefore come as no surprise to anyone that a recent report (Capgemini’s World Wealth 2022 report) found that 71% of high net worth individuals surveyed had invested in digital assets… and that cryptocurrencies are their “favourites”. Investing in digital assets.
In the crypto world, when you “buy” a cryptocurrency, you are actually buying an allocation of “digital units” of that cryptocurrency, which is recorded in a digital ledger that shows all allocations for that cryptocurrency (this ledger is known as an attached ledger only as “Blockchain”). The ledger stores this assignment of digital units using a unique identifier called a “public address” (a unique alphanumeric string). A cryptocurrency’s ledger is openly available for anyone to examine and consult at any time – in fact, anyone is free to scan the ledger and see the details of “digital entity” transfers to and from public addresses and the balances against public addresses.

Each public address is derived from a unique “private key” (again, a unique alphanumeric string) created by the person who wished to “hold” cryptocurrency at that address (this private key is usually created as randomly as possible). that no one can guess). This relationship between a private key and its corresponding public address is fundamental – it’s a one-to-one relationship – and only that specific private key can be used to control any of the cryptocurrencies against the corresponding public address are recorded in the blockchain. It is not possible to transfer funds to a public address without having the specific private key for that public address – if one were to attempt this, the transfer request would be denied, and the ledger would still show that the funds are under that one public address.

Golden Rule #1 – The Key

One of the golden rules in the crypto world is to ensure that you, as the true owner of the cryptocurrency, have access to the corresponding private key. Without this private key, you have no real control over the cryptocurrency held at the corresponding public address – since you cannot do anything with that cryptocurrency, e.g. B. transfer or sell them. If a private key for a public address is lost or forgotten, it effectively means you’ve lost the cryptocurrency held at the corresponding public address – you can still see the cryptocurrency balance at that address (by looking at the blockchain view), but that’s literally all you can do without the private key… just look at the balance. Because of this, accessing the private key (by storing it yourself) is the only way to have ultimate control over the cryptocurrency. (In the crypto world, storing one’s own private key is known as a “self-custodial” or “non-custodial” wallet for your private key.)

Golden Rule #2 – The Secret

The other golden rule is to make sure no one else knows or has access to your private key – it should be kept secret. If someone else knows or has access to your private key, then that’s all they need to fully control the cryptocurrency held at the relevant public address – and you cannot stop them from transferring the cryptocurrency to a other public address (which is another corresponding private key that you do not know or have access to).

Not your keys, not your crypto

Well, and here’s the point, if someone says they bought a cryptocurrency but doesn’t store or don’t have access to the private key of the corresponding public address, then they don’t actually have direct control over that cryptocurrency.

It is very likely that the person purchased that cryptocurrency through a third-party exchange or platform – and it is that exchange/platform that stores the corresponding private key, not that person (in the crypto world this is called a “custodial wallet”) ). The buyer therefore relies heavily on this exchange/platform to keep the private key secret and secure. Of course, this is not the same as storing the private key itself, as you don’t control the corresponding cryptocurrency directly – this exchange/platform does.

There have been a fair number of cases where bad actors have obtained private keys from third parties (using cybersecurity loopholes or otherwise) and transferred cryptocurrency away from public addresses without permission. More recently, there have been a number of instances where those who hold the private keys corresponding to their customers’ cryptocurrency purchases have re-pledged, commingled, loaned, transferred, or simply spent those customers’ cryptocurrency.

Yes, by looking at the ledger, the “stolen” cryptocurrency can be traced back to its final location (its final public address), but (a) one would need to know the public address where the cryptocurrency was held before it was taken, (b) the cryptocurrency is difficult to get back, (c) if it is returned, how much is it worth now? and (d) most exchange/platform terms and conditions seek to remove customer ownership rights to the purchased cryptocurrency (which would put them in the position of an unsecured creditor).

If anyone asks you what the crypto community phrase “not your keys, not your crypto” means, now you know.

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