Proof of keys - Crypto Academy- S4W7- Homework Post for [@awesononso]
Explain private and public Keys in relation to custodial and non-custodial wallets.
Private key as the name implies is a key specific to user account which give users an ownership over account . Any compromise in private key means compromise In users account. So this is a sensitive code which need to be handled with care. On the other hand, public key as the name implies is a alphanumeric cryptographic code that is cryptographically hashed to produce public address which is used to receive funds into the crypto wallets and can be shared with anyone. In cryptography, message is codified with the help of private key but decrypted with the help of sender's public key . Private and public key are interrelated and randomly generated on blockchain. Change in private key leads to chamge in public key and thereby public address. Any attempt to forge these keys invalidate the transaction.
In non-custodial wallets, there is no third party to hold the private key and the user is the absolute authority to control his keys and funds thereby. Loss of keys would mean loss of funds. In custodial wallets, private key is in control of third party and therefore absolute control of funds is vested by central authority. Users don't have access to private keys instead they operate the wallet with the help of password set at the time of creating wallet.
What do you think about the Proof of Keys Day? What precautions would you take when participating?
I think Proof of keys day is a nice initiative that was started in 2019 by Trace Mayer. I hold this opinion because this day help users ensure many things like :
To check the authenticity of the exchanges where they keep their assets by cross checking the facts displayed with the practical. Users get to know whether the data displayed is manipulated or valid.
To realise the essence of decentralised finance in true sense because of frictionless manipulation of ones own funds in self styled manner.
Pay homage to the parent coin (BTC) that unleashed the magic of cryptocureency to world as genesis block was mined on the same day.
To help users realise importance of private keys. By transferring funds into non custodial wallet, a user is bound to secure his private keys otherwise transferred funds are locked.
Precautions while participating.
Before transferring funds from centralised exchanges to non- custodial wallets, I'll first check my private keys.
Secondly I'll cross check the public address twice before transferring funds because if funds are transferred to wrong address , there is no way to get them back.
Once funds are transferred, I'll have to ensure safe storage of keys because in cryptcurrency, "Not your keys, Not your coins" holds true.
At the time of transferring back, I'll again cross check deposition address of the exchange to which transfer is made.
Do you prefer Centralized exchanges or Decentralized wallets for storing your cryptocurrencies? Why?
I would prefer decentralised wallets for following reasons:
In decentralised wallets, i have absolute control over my funds. Funds are not under the control of any third party as seen in case of centralised exchanges.
i can utilise my funds as per my convenience. I am not bound to follow any rules and regulations set by third party.
Decentralised wallets are more secure because i hold my private keys and it is my responsibility to secure my keys for the sake of my funds . I am not dependent of any one for that matrer.
I need not share the sensitive information with the exchange like banking details and personal information as that of centralised exchanges.
Decentralised wallets are transparent as there is no third party to manipulate data. Data is recorded on public ledger and cannot be deleted once recorded.
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).
Transfer STEEM fron Binance to Steemit.
Open Binance app. Click on Trades from bottom panel of options.
Scroll down and click on funds as shown below.
Locate STEEM and click on it.
On the next page, click on withdrawal.
Next enter Steemit user name in place of public adress and enter amount of STEEM and Memo.
Next click on withdrawal.
Confirm Transaction by entering 2 OTP's, one is recieved on mobile and other on email id. Than click confirm and transaction is submitted.
Shortly thereafter transaction is confirmed. I'll share history of steemit wallet for the sake of proof.
Transfer TRX from Binance to TronLink
First i copied my TronLink public address.
Than open Binance app. Click on Trades.
Scroll down and click on funds as shown below.
Locate TRX and click on it.
On the next page, click on withdrawal.
Next enter TronLink public adress and enter amount of TRX.
Next click on withdrawal.
Confirm Transaction by entering 2 OTPs, one is recieved on mobile and other on email id. Than click confirm and transaction is submitted.
Shortly thereafter transaction is confirmed.
I'll share TronLimk balance screenshot before and after transaction.
in one statement, what is the major significance of the transfers in question 4.
The major significance of transfer is to reinforce the difference between centralized exchange and decentralized wallets/platforms.
Conclusion
Wallets are primarily meant for storage of funds. Non custodial wallets are not under control of any third party. User has absolute control over his funds via private keys. Cutodail wallets have a centralised authority to hold keys and so absolute control is vested by authority not user. In order to realise the essence of DeFi, proof of keys day has a great significance although it mimicks bank run.