Cryptocurrency like Bitcoin, because it is issued in an anarchic and decentralized way, is not recognized as legal currency by most countries, and has no monetary characteristics such as repayment and compulsion in law. For example, the People's Bank of China has made it clear that Bitcoin is not a currency, but a tradable virtual commodity, and all domestic financial institutions are not allowed to conduct business related to Bitcoin. Nevertheless, cryptocurrencies such as Bitcoin and Ethereum have the basic characteristics of currency such as liquidity, payability, and scarcity.
Owners of traditional currency can deposit the currency in a bank or use it for payment in physical forms such as banknotes. Cryptocurrencies, on the other hand, basically keep the digital information of the account by the holder himself. In the Bitcoin system, the account number is a series of numbers generated by the public key in the Elliptic Curve Digital Signature Algorithm (ECDSA), after hash transformation, plus the check code, usually a 33- or 34-bit Base58 Encoded character, for example: 16UwLL9Risc3QfPqBUvKofHmBQ7wMtjvM. The reason for using Base58 to encode characters is to minimize the length of the account number, and to use upper and lower case English letters and numbers (excluding the confusing numbers 0, uppercase O, uppercase I and lowercase l) to represent numbers. This account is called an address in Bitcoin, and users need to use this address to receive bitcoins from others or send bitcoins to others (for the convenience of readers, this chapter will use this address in most cases to and address as synonyms). Therefore, the account number (address) in Bitcoin is like a mailbox with a house number. Anyone who knows the house number can transfer bitcoins into the mailbox. On the other hand, the owner of the mailbox has a special key, which is the private key corresponding to the ECDSA public key. Only by using this private key can the mailbox be opened and the bitcoins stored in it can be taken (expended). It can be seen that the private key is the account information that the Bitcoin owner needs to keep and keep secret. It should be pointed out that if you forget the traditional bank account password, you can find the bank to reset the account password. In the Bitcoin system, once the private key is lost, there is no way to "reset" the private key, and the mailbox will not be opened. Take away the bitcoin in the account, which is determined by the decentralized mechanism of bitcoin.
Since the private key is so important, the management of cryptocurrency assets such as Bitcoin is essentially the custody and use of the private key. The most ideal management method is to ensure the security of assets and to use them easily (payment or spending), but in reality, these two goals are often incompatible. For example, an easy way is to save the private key on a computer or mobile phone, and when you need to pay for bitcoin, you can use the software to sign and send the transaction with the private key. However, the disadvantages of this method are also obvious. If the computer or mobile phone is lost, or the private key file is damaged, the relevant account cannot be operated, and the bitcoins in the account are equivalent to being lost. In another situation, if a computer or other equipment is hacked or infected with a virus, the saved private key can be copied, and the encrypted currency in the account will also be stolen.
In order to deal with the loss of the device or the damage to the file, the private key file can be backed up to other devices, such as U disk, mobile hard disk, etc., and then store the backup device in a safe place, and the private key can be recovered in case of device failure. For external attacks such as hackers and viruses, because computers and mobile phones need to be connected to the Internet to pay for encrypted currency, theoretically, the possibility of private key theft cannot be completely avoided, and other methods need to be dealt with. Simply put, it is "separate storage", using multiple account addresses to store cryptocurrencies. Store a small amount of encrypted currency in frequently used online accounts, and save the private keys of these accounts on computers and other devices. The rest of the cryptocurrencies are transferred to the offline account. The so-called offline account means that the private key of the account is not stored on any connected device. Whenever the money in the online account increases to a certain level, it can be transferred to the offline account to save, and each transfer can use a different offline account. Another advantage of Bitcoin offline accounts is that when transferring Bitcoins to the account address, the account does not need to be connected to the Internet, which greatly increases the security.