Consider the private keys as the key to all the valuables that you own.
If you own the private keys to a valuable that is registered in the blockchain, you own that valuable and can therefore transfer that valuable.
Put another way; if you have the private key to a Bitcoin account in which there are 1,000 Bitcoin, you can send these Bitcoins at any time. This can only be done using the private key. Only and without exception! Anyone in possession of this private key can do the same. The blockchain checks no documents or signatures. The private key is secure and so, any transactions conducted with the private key are registered by the system as valid and secure.
Private keys in a blockchain and the public keys are directly connected
It is important to also remember that the Bitcoin or other cryptocurrencies do not lie in the wallets themselves. They are recorded in the blockchain, which accounts for how many Bitcoin belong to which address. These Bitcoins can only be transferred, i.e., a payment can only be made, with the corresponding private key. Only the approval for the transfers in the form of a private key is stored in the wallet. You must keep this in your head. Anyone can see how many Bitcoin are owned by each address but no-one can tell who owns the associated private keys. No-one can move the Bitcoin they can see. That can only and exclusively be done with the private key!
It follows that the private key needs to be considered like cash, gold or diamonds.
Those who own it can pay—just like those with cash, gold or diamonds. However, this is not all they have in common. Just as cash, gold and diamonds can be stolen, all kinds of gangsters are after other peoples’ private keys. And that is not all. Just as you can lose or mislay cash, gold and diamonds, you can also lose, mislay or just simply misspell your private keys with devastating consequences.
I hope this section has driven home just how important the private key is. You must always, under all circumstances, keep your private key to yourself—and keep it safely or risk everything.
The private key is key to everything
You have to proceed very precisely and carefully here because it is only these private keys that protect your entire assets. If they are lost, so are your assets. Irretrievably! If they are stolen, someone else now owns your assets.
That is why it is critically important that you are always in possession of your own private keys and look after them safely. There are absolutely no exceptions to this rule, at least for the part of the assets that you wish to protect. There are certain reasons why you might wish to keep some less securely, but more on that later. This rule applies absolutely for every coin you wish to protect.
This is what a Bitcoin private key looks like:
Clearly, this is not an easy number to remember, but it is easy enough to store in a computer by copying and pasting. Unfortunately, that is also very dangerous. Why? Now it gets exciting.
Copy/paste the private key is very dangerous
Many data security experts estimate that nearly all computers are infected with sleeping viruses and Trojans. These little villains—mostly sent by e-mail—lurk in the depths of the software and, at some point, activate a maliciously programmed part of the virus. These viruses are designed to take over the PC or misuse it in some other way. Enough cases have become known in which these malicious programs have locked and encrypted the hard drives of companies, or even large institutions like hospitals, and the decode key offered against a ransom payment. Interestingly enough, the payment of a certain amount of Bitcoin is frequently requested. Even fraudsters understand best practices when it comes to safely receiving third-party transactions.
Attacks like these can be annoying; however, in the private sphere, viruses can often be eliminated and reversed through backups. Unfortunately, this is not always the case, as it often depends on how you picked up the virus to begin with. Solving this issue probably involves a bit of trouble and effort, but it is possible if you regularly backup your computer. So, these attacks are not as dangerous for a private PC or a phone as they are for large companies. They are often just very troublesome and inconvenient.
What can be very dangerous for private keys, on the other hand, are the so-called “keyloggers.” These are small programs that record every keystroke on the keyboard and send it to a third person—the hacker. These keyloggers operate silently in the background without anyone noticing. Whatever you type is read by someone else. That is not just embarrassing but is also highly dangerous. These keyloggers can also copy and paste commands including data. This means they can easily copy and send your private key to the attacker. If this happens, the key to your assets is now in someone else’s hands!
This stranger now has full access at any time to the Bitcoins or other cryptocurrencies, for which he has obtained the private key. He can simply transfer the money at any time; preferably to an account to which he, and only he, has the private key.
Therefore, it is also dangerous to create a paper wallet, which often seems like a good safety measure in itself. If the paper wallet is created with a computer that is, or will be online, it too could be compromised. The details of how you can create a new private key and associated address through the www.bitaddress.org/bitaddress.org site were explained earlier. It is only safe to create a paper wallet if you get this code from a computer that has never been online, let it run, and then wipe it completely after the generation of the key is completed.
This all sounds very paranoid, but we are dealing with very sophisticated criminals who understand the system ways better than you and me. They actively construct ways to relieve you of your cryptocurrency and other valuables, so it is very important to be ruled by paranoia here.
This a short story out of my book
Bitcoin, Blockchain & Co.
The Truth, and Nothing but the Truth