Controlling Your Private Keys
In the previous articles we’ve touched on the things you absolutely need to get started in Bitcoin: is Bitcoin a good investment to invest in and the knowledge to buy Bitcoin and move it from place to place. If you were to stop now you’d be able to function in the Bitcoin ecosystem. But I don’t want you to stop now because you’d be missing out on the parts of Bitcoin that make it so disruptive. I want to talk about the part where you and only you control your money, it’s especially useful when you wish to have considerable investments in cryptocurrencies. Let’s talk about Private Keys.
Time for another short lesson. We’ve talked about Bitcoin Public Addresses. That is only half of the story. Every Public Address has associated with it a Private Key. Think of the Public Address as a night drop box on the side of a bank. The bank can hand keys to the public side of the box to anyone it chooses to do business with. That way anyone can put stuff into the box. But the inside keys are private and only given out to people the bank wants to be able to remove stuff from the box. You need the Public Address to receive and hold the Bitcoin. You need the Private Key to send it out again. Now imagine a different night drop box for every transaction you do. That is Bitcoin.
You may wonder why we never discussed Private Keys before this. As I wanted to get you started in Bitcoin as quickly as possible my tutorials encouraged you to use Coinbase and Circle. These two services handle your Private Keys for you. But what you gain in simplicity you lose in control. While I very much like both of these services I remind you of this truism, “If you don’t solely hold the Private Keys you don’t own the Bitcoin.” Anyone with access to your Private Keys can take your money. I’m not suggesting that Coinbase and Circle would do this. I’m simply suggesting they could. I continue to use both Coinbase and Circle to this day, but my long term storage is held in wallets to which only I control the Private Keys. I recommend you do the same.
The first thing you need is a wallet that doesn’t use a web wallet as a back end. Coinbase and Circle mobile wallets aren’t exactly wallets. They’re extensions of their respective web wallets, which is why they control the Private Keys. Again, this is good for simplicity and learning. It’s not good for control. What we need is a wallet that produces and controls Public Addresses and Private Keys on its own, stores them locally, and allows you to create and restore backups.
If you decide to take full control of your private keys using a wallet allowing you to do this just make sure you will store your keys in a safe place.