Proof of Keys- Steemit Crypto Academy- S4W7- Homework Post for @awesononso
- Explain private and public keys in relation to custodial and non-custodial wallets.
Definition of a key: A key in cryptography is a piece of information usually strings of numbers or letters that are stored in a file. Which when processed through a cryptographic algorith, can 'encode' or 'decode' cryptographic data.
Now in simple words, a private key is used by a receiver to decrypt the cipher text and read encrpted messages.
A private key, also known as a "secret key" is a variable in cryptography that is used with an algorithm to encrypt and decrypt data. It is typically a long randomly generated sequence of bits that cannot be guessed easily.
Advantages of private key
• It is very easy to use since the system only needs to perform a single, reversible mathematical equation to encrypt
or decrypt a file.
• We can totaly encrypt an entire file system, protecting them from outside users.
• Symetric algorithms can also be easily implemented at the hardware level.
Public key, just as the name implies is a large numerical value often provided by a trusted authority used to encrypt data.
It is made available to everyone through a public accessible directory. We obtain and use it to encrypt messages intended for a particular recipient such that the encrypted messages can only be deciphered by the second key known to the receipient (the private key).
Now that we have gotten both definitions, we then relate it to custodial and non-custodial wallet.
In custodial wallet, the private keys are held by a third party. Meaning that the third party has full control over your funds while you only have to give permissions to send or recieve payments. Freewallet is a good example of this.
Advantages of custodial wallets.
• Free transactions: This is one of the biggest benefits of a custodial wallet. Unlike other wallets, it does not demand a transaction fee. All customers make transactions for free within the system.
• Backup possibilites: The central authority managing your custodial wallet offers backup facilities. This makes it easier to undo and restore previous transactions.
• Data security: In custodial cryptocurrency exchanges, a huge amount of users funds are stored in cold and hot wallets. These wallets may not be an easy target for hackers.
• No major effect of lost private keys: Since the third party manages your custodial wallet, so even if you lose your private key, it is easy to regain access to your wallet and stored funds.
Disadvantages of custodial wallets.
• Need for ID: Custodial wallets strictly recomends users to perform KYC ( Know your customer ID verification. You cannot gain access to your funds without proving your identiy.
• No offline facility: Internet connection is a must for logging into custodial wallets or to perform any transactions.
• Custodians control your money: This is one of the biggest disadvantages as you do not have liberty over your wallet. The third party has complete freedom over your funds and associated processes.
• Data breach: You do not own your private keys, meaning that security is being left up to a third pary which may be vulnerable to hackers.
In non-custodial wallets, it permits users to own their private key,which are in crypted storage. Uses are responsibe and in full control of theis funds and assets.
Advantages of non-custodial wallet
• Instant withdrawals: Unlike the custodial wallet,these wallets do not need confirmation from a third party to perform transactions. This makes it easier for instant withdrawals.
• Users control over funds: Non-custodials do not look up to any third party to manage their fundings. They provide users an individual access to their funds.
• The primary reason why crypto holders rely on non-custodial mobile storage is because the risk of security breach is low since all details concerning your crypto wallet relies on you.
Disadvantages
• User interface: The user interface are presented in a way that is a bit difficuld to understand.
• There will be trade delays as the currencies will be initially sent to an exchange.
• Key lost equals money lost: Loosing a private key can make the user lose access to their wallet without any backup or recovery possibilities.
- What do you think about the proof of key day?
What precaution would you take when participating?
The proof of key day is an event created by Trace Mayer, where people simultaneously pull their cryptocurrency out of centralized exchanges. The main goal of this event is to ensure that exchanges have the funds they claim to have. If not, there's n o guarantee that you have the coins you purchased on the exchange. ( Not your keys; Not your bitcoin).
Participating in the proof of keys day is very easy. As the idea is to declare financial autonomy by withdrawing all funds from exchanges.
But let us look at some security precautions to take when participating;
• Firstly, maintain your privacy: In formations can propagate very quickly and sometimes in undesirable directions. So you should not reveal any sensitive information to avoid possible focused attacks from hackers. It is also recommended not to mention your balances, and not to share your previously used addressess.
• Using strong and unique passwords for your offline accounts will be a great one in improving your general security.
• To ensure the availability of your coins and maximize security, it is recommended that private keys should be held offline.
• Lastly, remember that security is never absolute and finished. So update your knowledge base from time to time and check your potential weak points on a regular basis.
- Do you prefer centralized exchanges or decentralized wallets for storing your cryptocurrencies?
Why?.
I prefer a decentralized wallets for storing my coins due to the underlisted reasons;
Security: The major of decentralized exchanges employ some form of distributed hosting, thereby minimizing risk of intrusion and attacks.
Custody: Traders do not need to abandon control of their private keys to transact.
Participating possibilities: In decentralized wallets, one do not have to rely on any thirdparty to manage/secure our coins.
Decentralized systems creates more easier opportunities for information to get to it's users as it does not have to go through lines of authorities to get to its users.
4.) Let us assume it is Proof of Keys Day:
a.)Transfer at least 20 Steem from your Binance wallet to your Steemit wallet.
b.) Transfer at least 50 TRX from your Binance wallet to your TronLink wallet.
(Provide Screenshots and make sure you have your Keys).
The procedure for the transfers:
First from my binance wallet you can see that I have about 50 steem and there is nothing in my steem wallet as we can see below.
I will be transferring 20 steem from binance to my steem wallet. So I click on my Steem balance and then click on deposit first to copy my memo key and next I log out from there and then click on withdrawal then input my username which is davchi and then paste the memo key I already copied.
After posting it I click on withdraw and then the system redirects me to login my account details which is my phone number and my email option which will be used in authenticating the withdrawal.
Finally after inputting my email and phone number option the system then authenticates the transfer and from the balance of my steem wallet, you can see that I now have a balance of 20 steem which took a minute before it arrived into my wallet.
In the process of transferring my TRX from my binance wallet to my Tron link wallet, let's go through the screenshots below as you can see that my tronlink balance has a deposit of 580 trx and my binance TRX balance is stipulated at 294.7
First I go to my tronlink wallet and click on receive and then copy my address.
Next I'll go to my binance wallet and paste the copied address with all the details of my tronlink address, like the network I'll be transferring with, after inputting those details with about 50 TRX I'll be transferring then i click on transfer
And finally it is transferred direct to my translink wallet as you can see that the balance of my training quality has increased from 580 to 630.5 and also the balance on my binance account has depleted from 294.7TRX to 243.7 TRX which is the confirmation of the transfer even as we can see you from my TRX balances below.
5.) In one statement, what is the major significance of the transfers in question
The major significance of the transfer is to make a reminder of why the Blockchain was created and where the main home of Cryptocurrencies are.
CONCLUSION
Cryptography is the practice and study techniques for secure communication in he presence of third party. It is the science of using mathematics to encrypt and decrypt data. It enables users to store sensitive information or transmit it across insecure networks.
Private and public keys are used to decrypt cipher text and to encrypt data in cryptography.
Custodial and non-custodial wallets are crypto- currency wallets used to store funds. In non-custodial wallets, you have sole control of your private keys. while in custodial wallets, a third party controls and manages your funds while you give permisions for transaction.
Centralized exchanges are owned and controled by a central authority ( Centra third party) that maintains authority over the exchange wallet, transactions. While decentralized exchanges are one without any central authority. You maintain and manage it yourself.
With this and lots more i have learnt at the cost of this lecture.
Lastly, i must commend professor @awesenonso for this well detailed lecture,
Thank you sir once again.
It's an honour to participate in your claas.