High net worth people (let’s say $100,000+ in cryptos and over $0.5 mln. in other assets) usually keep their cryptos in hardware wallets. Investors, who hold but not trade cryptos, write private keys on a paper, then cut it in several pieces and keep each piece in a separate deposit box in a bank, Brinks’s vault, or other super secure organizations.
Let us imagine that in a bank was a fire and from heat of the fire, the paper with a part of the private key was destroyed. Now, the owner has a big problem in accessing her/his crypto. The second situation is when the owner loses her/his key to the safe deposit box. Now, she/he can not access her/his cryptos for a limited time interval. As we can see, this method is not very secure and is not very convenient.
Crypto whales are high net worth entities, which trade cryptos. As a rule, they keep their private keys in hardware wallets, but passwords to these wallets they keep in passwords managers, which store the passwords in encrypted files. The problem with such passwords managers is that hackers can easily get the encrypted files and break the encryption with clusters of super-computers or modern quantum computers. For example, LastPass was hacked in such way multiple times and millions of users were affected by these hacks (see [1-2]). The other big problem with this method is that hardware wallets can be hacked as well (see [3]).
The more secure way to guard crypto assets, for high net worth entities, is to use virtual (phantom) wallets. These wallets do not exist in the real world, outside of a time interval on which they are created and used. Examples of phantom(virtual) wallets are generated on demand (GOD) wallets and secure brain wallets (SBW). See [4-9].
On the first step, a dynamical passwords generator (DPG) is used to generate super strong passwords/strings from easy to remember parameters (key and date). On the second step, a virtual key is created from those passwords. Only a user knows how to create the virtual key. On the third step, a converter is used to convert the generated virtual key into a private key and the corresponding public address. After the private key is used to make a transaction, both keys are deleted/destroyed in a secure way. After this deletion/destruction, the virtual and private keys do not exist in the real world. For this reason, the private key can not be hacked, stolen, damaged, broken, confiscated, etc. as long as it does not exist in the real world.
Let us consider an example. As easy memorable inputs, we select Taylor Swift’s name and birthday (December 13, 1989)
Step 1. As a DPG we use dynpass.online. We enter Taylor Swift as a key and her birthday as a date and click on the “Go!” button. For security reasons, it is recommended to use private DPGs, instead of public DPGs on this step.
Step 2. Now, from the 20 output strings we select 1st and 3rd strings of symbols and combine them to form a virtual key: xi=y)mfDd(#]!g1ljb2HMGhAL9*!Kz}zlZ@zm($}. A user can use any other rule to construct her/his virtual key.
Step 3. We use this converter https://dynpass.online/demo/bw/btc.html to create a private key and a public address of our virtual BTC wallet.
For security reasons, it is recommended to use an offline converter.
We check that the BTC address was not used by other people by entering the BTC address in the search field of the BTC explorer https://www.blockchain.com/explorer
The address is not used by other people. We can use it.
After making a transaction, we secure delete/destroy the private and virtual keys. Now, there are no our keys in the real world.
References:
[1] https://www.makeuseof.com/how-many-times-lastpass-hacked
[2] https://www.kiplinger.com/personal-finance/lastpass-hack
