- >Ask CryptoVantage: Is it Ever a Good Idea to Share Bitcoin Private Keys?
Ask CryptoVantage: Is it Ever a Good Idea to Share Bitcoin Private Keys?
It is important to always protect your private keys – and that usually means never sharing them with other people. However, there are certain circumstances where it might be necessary.
In this article, we discuss risks associated with sharing your private keys and highlight some of the only situations where it may be necessary to give your private keys to others.
Billy Garrison | Feb 4, 2021
Risk of Sharing Your Private Keys
Your private key is a very large number that allows you to “unlock” (or spend) your bitcoin.
Private keys are what you use to prove that the bitcoin you own actually belongs to you. Due to the decentralized nature of the bitcoin network, if someone gets a hold of your private key and spends your bitcoin, there is no way to recover your funds. And unlike a bank, if you lose your private key, there is no one you can prove your identity to in order to get your bitcoin back. As you can imagine, it is essential to keep your private key as safe as possible.
Beware of Scams
Since your private key is the number needed to spend your bitcoin, most scammers will try to trick you into giving it to them. Sometimes, scammers will disguise themselves as fake exchanges, and ask for your private key during the set up phase.
Some viruses look like legitimate bitcoin software (such as your bitcoin wallet software) and ask you to enter the seed phrase which represents your private keys. A general rule of thumb is to never enter your seed phrase into a computer that is connected to the internet. For more information about bitcoin scams, take a look at our article How to Spot Cryptocurrency Scams.
Online Bitcoin Exchanges
It is important to note that when you buy your bitcoin on an exchange, you are not usually provided with a private key. There are many reputable bitcoin exchanges who have stringent protocols in place to protect your bitcoin, however it is imperative that all exchange users know that when your bitcoin is stored on an exchange, the exchange essentially owns the private key on your behalf. Therefore, you are trusting the owners of the exchange with complete control of your funds.
Despite the convenience of buying and selling your bitcoin on an exchange, it is best practice to keep your bitcoin on your own private hardware wallet. Once you have your bitcoin on your own hardware wallet, you become the only person with access to your private key. This is particularly important if you own a large amount of bitcoin.
Situations Where You Might Need to Share your Private Keys
While it is true that in most situations you should not share your private keys, there are some circumstances where you might need to.
When sharing private keys, be sure you understand the implications of doing so. If you don’t, it could end up costing you all of your bitcoin.
Perhaps you share your bitcoin private keys with your spouse, or maybe you are planning for your next of kin to inherit your bitcoin. This is an instance where it can be acceptable to share private keys, as long as you have full trust in these people.
You not only have to trust that they will not steal your bitcoin, but you also have to trust they will not use the private keys carelessly and lose the bitcoin to theft!
Shared Custody Multisignature
In the shared custody multisignature setup for storing bitcoin, you are required to share one or more of your private keys with the service provider. If you are using this sort of arrangement, make sure no person or group ever has enough keys to meet the multisignature quorum.
For example, if you are using a 2-of-3 multisignature setup then make sure that you hold at least two of the private keys and the service provider only holds one.
Perhaps the most important rule of owning bitcoin is that you must protect your private keys. Most of the time this means don’t share them with anyone. It can be very easy to lose your bitcoin if you aren’t careful with your private keys.
However, there are certain circumstances, such as inheritance planning or shared custody multisignature setups, where it can make sense to share your private keys. Just make sure you understand why you are sharing them and what the implications are before doing so!