Reason: If You Loose Bitcoin Private Key, You Are Doomed! Unlike your bank account, where you can contact a customer service agent ...
Reason: If You Loose Bitcoin Private Key, You Are Doomed!
Unlike your bank account, where you can contact a customer service agent for any emergency help or support, in bitcoin world, there exits nothing called “3rd party support”. The entire system is more like a DIY type system where you can survive only if you follow the rules as said else you can loose your entire fortune in seconds with no hope of recovery.
The private key is the soul of any Bitcoin holdings similar to your ATM pin code or card validation code (cvc). The public key is used to receive bitcoin funds while the private key is used to sign (prove ownership) transactions in order to spend those bitcoin funds.
A bitcoin wallet contains a collection of key pairs, each consisting of a private key and a public key.
This key pair is created using public key cryptography as illustrated by the following info graphic created by MBT:
- The private key (k) is a number, created at random by bitcoin software, similar to how you toss a coin 256 times to create a random number each time.
Private key is a 256 bit long number which means you can create a total of 2256 or (1.158 * 1077) unique private keys in total using the bitcoin software.
The visible universe contains 1080 atoms, so the bitcoin private keys can never go short even if every bitcoin user may create over 10 billion private keys and waste another 100 billion keys!
Private keys are (256/8 = 32) 32 bytes in size.
- The public key(K) is generated from the private key(k), using elliptic curve multiplication, a one-way cryptographic function. Public keys are 33 or 65 bytes in size depending the key is compressed or uncompressed.
I said one-way because unlike a mathematical function which can be solved both ways, a cryptographic function works only one way. 2 +2 = 4 and 2 +1 +1 = 1 + 3 are same mathematical equations but they are two different cryptographic equations. Thus in cryptography, you can create a public key using a private key but you can’t do the reverse.
- The Bitcoin Address (A) is created from the public key (K), using one-way hash functions called SHA256 and RIPEMD160. Bitcoin addresses are thus (160/8 = 20) 20 bytes in size.
Bitcoin address is the digital fingerprint of a public key. For security reasons, in the payment section of a bitcoin transaction, the recipient’s public key is represented by a bitcoin address, similar to how we use the beneficiary name on a cheque instead of writing account number (i.e. “Pay to the order of ”).
These digital keys and addresses are not actually stored in the bitcoin network, but are instead stored by bitcoin users inside a simple file or database, called a wallet. A wallet can be a software (e.g: Coinbase, Electrum, Bitpay), hardware (e.g: Trezor or Ledger Nano S) or even a paper (also called cold storage).
A software wallet is the most easiest option for hackers to breach and gain access to users private keys and public keys thus moving all funds from user accounts to their bitcoin address. Since the law of jungle rules in cryptocurrency world, there is no authority you can reach for help.
As far as hardware wallets are concerned, you can easily misplace them or the device can crash or stop working. After all it is all cheap electronics made in China.
Even if the device worked just fine, there is still high human error involved when you base your monetary decisions solely on electronics. You need to remember a pin code to access that hardware wallet. If in case you forget the pin code or loose 24 different recovery words, you can loose all your bitcoin wealth, like this man who lost $30,000 because he forgot his pin code and also the recovery words.
As far paper wallets are concerned it is same like printing your bank account username and password on a A4 size paper. If you accidently loose that paper or misplace and forget it, the funds secured by it are lost forever.
Even if someone from your home or workspace, manages to take a snapshot of your bitcoin paper wallet using a mobile camera, you are equally doomed. Don’t tell me its not possible, this world is filled with so much dirt already.
The bitcoin network is designed such that it offers no customer protection. If your private key is stolen or hacked, the system can not identify the hacker nor can it block further transactions of those stolen bitcoins, or return them to the legitimate owner. You are solely at the mercy of your memory power and pure electronics.
Reason: Bitcoin Sent on a Wrong Address, Can't be Recovered
How many times have you mistakenly chosen 20,000 instead of 2,000 while withdrawing cash using an ATM? Most of us make this mistake often because our mind is programmed such that our fingers get out of control the moment it sees a keypad. Our fingers just feel like hitting a key as fast as possible.
This care-free attitude and too much trust on machines is still bearable on centralized banking systems, where you can file a dispute if you mistakenly add an extra zero to the amount sent to a recipient during online banking or cheque deposit but with cryptocurrencies, this habit can cause you unrecoverable loss.
Bitcoins are often sent mistakenly to wrong addresses like in the following scenarios:
- You can send bitcoins to a wrong address by mistakenly copy/pasting an address you previously sent funds to. As happened here where someone mistakenly sent over $8000 to a wrong address.
- Entering a mistyped but mathematically valid address that passes the checksum. The funds will exist in the blockchain but will belong to none. Thus permanently lost.
- You copied a bitcoin address but since your computer was compromised by a malware, what you pasted was the hackers address as happened here.
You can also accidently add a higher amount (like an extra zero) while sending bitcoins to a freelancer than you intended. Like paying $100 instead of $10 or $255 instead of $25.
The only way by which bitcoin can be received back is to request the person to whom you have accidently sent the bitcoins to refund it. It’s up to the sincerity of the receiver to issue a refund or not.