Private key management: custodial, non-custodial and multisig wallets

The well-known phrase “Not your keys, not your coins” sums up the most important principle of crypto security: whoever holds the private key really owns the asset. Correct key management is the backbone of every wallet, exchange or blockchain financial service.

Private key, public key and address

A private key is a secret random number. The public key is derived from it, and the wallet address from the public key. Transactions are signed with the private key, and anyone can verify the signature with the public key without the private key ever being revealed.

Wallet types

Custodial

Keys are held by the service provider (an exchange, for example). The user experience is simple, but users must trust the provider's security and honesty.

Non-custodial

The key is generated and stored only on the user's device. The KMT web wallet is built this way: signing happens in the user's browser and the server never sees the key.

Multisig and MPC

A transaction needs approval from several independent keys (2 of 3, say). For corporate treasuries this sharply reduces the risk of one compromised device or one person's mistake.

Best practices for users

• Keep the recovery phrase offline on paper or metal; never photograph it or store it in the cloud.
• Use a hardware wallet for large amounts.
• No legitimate service or support team will ever ask for your recovery phrase.
• Check the destination address on the wallet screen before confirming.

Best practices for service providers

1. Hot and cold wallets: keep only daily operating balances on online servers.
2. Least privilege: the signing service runs separately, with restricted access and no extra services.
3. File permissions: the key file is readable only by the service user.
4. Sign only after verification: in KMT Exchange, tokens are credited only after server-to-server payment verification.
5. Encrypted, tested backups: key backups are stored separately and restores are rehearsed.
6. Hardware security modules (HSM): for larger scale.

Most large crypto thefts did not break cryptography; they exploited poor key management.