Proof of keys - Crypto Academy- S4W7- Homework Post for [@awesononso]

aamir07 (62)Beginner[2,3,4,5]in SteemitCryptoAcademy • 3 years ago (edited)

Q1:- Explain private and public Keys in relation to custodial and non-custodial wallets.

The autonomy of DeFi is ensured through cryptographically generated alphanumeric combinations known as keys. There are 2 categories of keys namely public and private keys. A public key is a cryptographic code that is shared by users with counterparties to receive funds. Each public key has its unique private key, which is used during the encryption or decryption of data. Public-key uses a digital signature to verify user authentication before it is added to block.

The private key is an alphanumeric combination that is unique to each user account and confers a title of ownership to the user. It is used to sign transactions before finalising transactions for broadcast. As long as the user has the private key, he possesses funds too. Compromise in the security of private keys means compromise with a user account and the funds thereby.

Custodial wallets are under the control of third parties and the transactions are performed with the help of a password set at the time of creating an account on the wallet. It means that in the case of custodial wallets the absolute authorities are vested by the third party that holds the private keys. So there is always an element of insecurity on part of the user for being not able to operate the wallet with the help of a private key. On the contrary, in the case of Non Custodial wallet user has absolute authority over his account and the funds thereby as a user can operate the wallet with the help of a private key. It means that In the case of Non-Custodial wallets there is no third party to hold the private key of the user. Here the sole responsibility of securing keys and funds thereby lies on the user himself.

Q2:- What do you think about the Proof of Keys Day? What precautions would you take when participating?

I think the Proof of keys days is a creative innovation of Trace Mayer that was started in 2019. Proof of Keys Days help users to ensure the following points about DeFi:-

By transferring funds from centralized exchanges to decentralised wallets, users get a chance to check the authenticity of the exchanges.
The essence of DeFi is truly perceived by users because they are not bound to abide by the rules and the regulations laid down by any third party as they can transfer funds at their convenience.
Proof of Keys days has a historical significance because the first block or the genesis block of the Bitcoin was mined on the same date. It is therefore an event to pay tribute to the parent coin that unfolded the power of DeFi to the world.
To emphasize the importance of private keys because a user has to ensure that he has private keys. Funds transferred to the Non Custodial wallets can not be transferred back to the exchange without a user having access to private keys as the outgoing transactions have to be signed with the private key.

Precautions while participating in Proof of Keys event.

I will have to check the private keys of the Non-custodial wallet to which I am anticipating transferring my funds from the centralised exchange because once funds are transferred they won’t be manageable without having access to private Keys.
While transferring funds I will have to crosscheck the public address of the non-custodial wallet to which funds are transferred because we know that any need transaction made to wrong addresses cannot be recovered unless the user is himself ready to pay back this is what we call non-repudiable nature of the decentralised system.
Once funds are transferred to the non-custodial wallet, I will have to ensure safe storage of the keys because only if I have keys I will be able to transfer funds back to the exchange for further use.
At the time of transferring funds back to the centralised exchange, I’ll have to properly check the deposition address of the centralised exchange because the non-repudiable nature holds here too.

Q3:- Do you prefer Centralized exchanges or Decentralized wallets for storing your cryptocurrencies? Why?

As for storage of the cryptocurrencies is concerned I will prefer a non-custodial wallet for the following reasons:

In decentralized wallets, I have absolute control over my funds because there is no third party to hold my private keys.
I can manipulate or utilise my funds as per my convenience because I am not bound to abide by the rules and regulations laid by any third party like centralised exchanges.
Decentralised wallets are more secure than centralised exchanges because the underlying technology that runs the decentralised wallets is distributed ledger technology which is maintained on multiple nodes where manipulation of data is nearly impossible.
Decentralised wallets are more transparent than centralised systems. It’s not uncommon to hear the manipulation of data on centralised systems. In the case of decentralized wallets, data is recorded on a public ledger which is non-editable once recorded after verification and validation.
As for setting niche on exchange or a Wallet is concerned, I’m not comfortable in sharing my personal details like banking details identity information with anyone.we know that for setting an account on centralised exchange we need to share these details and as the exchange are under the control of third-party it means our data is being shared with some unknown third party.on the contrary in case of decentralised wallets we need not share such sensitive information with anyone.

Q4:- Let us assume it is Proof of Keys Day:

a.)Transfer at least 20 Steem from your Binance wallet to your Steemit wallet.

Open Binance app,Click on wallet from the bottom panel and you'll see you funds available...
Find Steem and click on it.
On the next page, click on withdrawal.
After that enter your steemit user name in place of public adress and enter amount of STEEM and Memo.
Click on withdrawal.
Enter OTP's,one is recieved on mobile and other on email id. Than click confirm and transaction will be submitted.

b.) Transfer at least 50 TRX from your Binance wallet to your TronLink wallet.

(Provide Screenshots and make sure you have your Keys).

Open your tronlink wallet and click on receive to copy TronLink public address.
After that open Binance and click on wallet, where you'll see your available funds..
Locate Trx and click on it.
On the next page, click on withdrawal.
Next enter TronLink public adress and enter amount of Trx you want to send.
Next click on withdrawal.
Enter 2 OTPs, one is recieved on mobile and other on email id. Than click confirm and transaction will be submitted.
See the screenshots of both the transactions.

Q5:- In one statement, what is the major significance of the transfers in question 4.

As per my understanding is concerned the major significance of transfers made in question number four is to help us understand the difference between the operation of a centralised exchange and decentralised wallets.

Conclusion

Exchanges are the crypto market places that are primarily meant for facilitating execution of trades but exchanges do have wallets too. Wallets are primarily meant for the storage of funds and not for the execution of trades. Custodial wallets are under the control of third parties while as is non-custodial wallets are governed by the user, therefore non-custodial wallets are more secure than centralised wallets or exchanges.

Thank you @awesononso for tho wonderful lecture.

#awesononso-s4week7 #cryptoacademy #proofofkeys #steemexclusive #india