Not Your Keys, Not Your Coins: Explained
| — The expression “not your keys, not your coins” refers to needing to own the private keys associated with your funds
— The person owning private keys is the one deciding how the crypto assets associated are spent – if you don’t own this, you’re entrusting your crypto to a third party
— If you do own your keys, you have complete control over how to use your funds
— Owning your keys also means being responsible for their security.
“Not your keys, not your coins” is a popular expression in the world of cryptocurrencies – and a very important one at that. Without owning your keys, you wouldn’t really be in control of your coins. Curious as to why? Well, we have the answer for you – let’s dive into it.
Public and Private Keys: Explained
Similar to a bank account number, cryptocurrencies are sent to a receiving address. The technical term for this address is the public key. When someone sends you some Bitcoin, they will send it to your public key. It’s called public, since you can send it to anyone without compromising your crypto.
There is, however, another key that is linked to your public key. That would be the private key. This key is absolutely vital. Anyone that has access to the private key can access the funds on the public key that it’s linked to. In simpler terms a private key is similar to a password – a means of identifying you as the true owner. When speaking of “not your keys, not your coins”, it refers to your private key.
Centralized Platforms Retain Custody Of Your Keys (And Therefore Your Coins)
When logging into your favorite crypto exchange, it might seem like you actually own the coins on your account. After all, you do need to log in to gain access to them, right?
Wrong. Not all exchanges work in the same way. Some cryptocurrency platforms, such as centralized exchanges, use custodial wallets. Put simply, custodial wallets allow users to access them, but not own them. In fact, the centralized entity governing these platforms have the power take a cut of any cryptocurrency transaction you make. This is because you don’t own the private keys to the crypto assets on your account – the exchange or centralized platform does instead.
This phenomenon isn’t limited to exchanges: it goes for any wallet provider that doesn’t allow you to own the keys to the associated funds. If you don’t own the private keys, then you are not the true owner of the funds – you’d be entrusting a third party to it. This means that they essentially can do whatever they want with the cryptocurrencies on your account.
Self-Custody of Your Private Keys: Why It Matters
There’s a plethora of reasons why you’d want to own your keys, rather than leaving it in the custody of a third party, requiring you to trust your funds to them.
The most obvious is accidentally entrusting it to malicious actors. Should you have trusted a malicious third party with your money, you’ll likely never see it back. Thankfully this is quite unlikely with established companies.
Even then you will never be in total control over your own money with them. As mentioned previously, they can set certain restrictions like a maximum withdrawal limit or fees associated with using their services. They can decide what you can do with your own hard-earned money. Also if their platform has any technical issues, you’re basically locked out of your cryptocurrencies. In short: so long as you don’t own your keys, you won’t have financial freedom and your funds remain at someone else’s mercy.
On top of this, you won’t have control over the security of the platform’s system either – you’re outsourcing your cryptocurrency’s security to them. Unfortunately over the years, there have been major hacks that have amounted to around 2 billion dollars being stolen.
The opposite is true if you own your own private keys. By having the private keys, you can set your own rules. There won’t be anyone else telling you what you can or cannot do with your own cryptocurrencies. By having your own keys, you fully own your own coins and can enjoy financial freedom.
Having your own keys does come with an important responsibility though: you must ensure that you’ll be the only one to hold those private keys. If anyone else manages to get their hands on them, they can access and take your cryptocurrencies.
Not Your Keys, Not Your Coins: Why Ledger Gives You Full Control.
Ledger devices are designed to provide you with the path to financial freedom with the highest level of security for your private keys – thus your cryptocurrencies.
Firstly, they generate and protect your private keys without ever exposing them to your computer or smartphone. This means that even if someone were to hack your PC, they’d still not get access to your precious crypto assets. Plus, all Ledger devices use the top-notch computer chip used for passports and bank cards, the Secure Element. This can withstand even the most highly sophisticated physical attacks.
Ledger devices provide peace of mind to our users by offering an easy-to-use, accessible yet secure solution. In short: with our devices, you still own your keys, thus you securely own your own coins.
It doesn’t end there though. With Ledger’s expertly crafted software, Ledger Live, you have full control over your assets. We equally provide a single platform for managing multiple cryptocurrencies, where you can directly buy cryptocurrency and even passively earn more for certain ones through staking. All while keeping the high security standard we’ve set for ourselves. Over the years, Ledger Live has grown to a central starting point for anyone wanting to join the world of cryptocurrencies – and we’re still working on adding even more exciting new features.
Keep learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video How to Keep Your Crypto Safe.