For old-school CD keys, it was just a matter of making up an algorithm for which CD keys (which could be any string) are easy to generate and easy to verify, but the ratio of valid-CD-keys to invalid-CD-keys is so small that randomly guessing CD keys is unlikely to get you a valid one.

INCORRECT WAY TO DO IT:

Starcraft and Half-life both used the same checksum, where the 13th digit verified the first 12. Thus, you could enter anything for the first 12 digits, and guess the 13th (there s only 10 possibilities), leading to the infamous 1234-56789-1234

The algorithm for verifying is public, and looks something like this:

x = 3;
for(int i = 0; i < 12; i++)
{
    x += (2 * x) ^ digit[i];
}
lastDigit = x % 10;

CORRECT WAY TO DO IT

Windows XP takes quite a bit of information, encrypts it, and puts the letter/number encoding on a sticker. This allowed MS to both verify your key and obtain the product-type (Home, Professional, etc.) at the same time. Additionally, it requires online activation.
The full algorithm is rather complex, but outlined nicely in this (completely legal!) paper, published in Germany.

Of course, no matter what you do, unless you are offering an online service (like World of Warcraft), any type of copy protection is just a stall: unfortunately, if it s any game worth value, someone will break (or at least circumvent) the CD-key algorithm, and all other copyright protections.

REAL CORRECT WAY TO DO IT:

For online-services, life is a bit simpler, since even with the binary file you need to authenticate with their servers to make any use of it (eg. have a WoW account). The CD-key algorithm for World of Warcraft - used, for instance, when buying playtime cards - probably looks something like this:

1. Generate a very large cryptographically-secure random number.
2. Store it in our database and print it on the card.
   
   Then, when someone enters a playtime-card number, check if it s in the database, and if it is, associate that number with the current user so it can never be used again.

For online services, there is no reason not to use the above scheme; using anything else can lead to problems.

When I originally wrote this answer it was under an assumption that the question was regarding offline validation of licence keys. Most of the other answers address online verification, which is significantly easier to handle (most of the logic can be done server side).

With offline verification the most difficult thing is ensuring that you can generate a huge number of unique licence keys, and still maintain a strong algorithm that isnt easily compromised (such as a simple check digit)

I m not very well versed in mathematics, but it struck me that one way to do this is to use a mathematical function that plots a graph

The plotted line can have (if you use a fine enough frequency) thousands of unique points, so you can generate keys by picking random points on that graph and encoding the values in some way

As an example, we ll plot this graph, pick four points and encode into a string as "0,-500;100,-300;200,-100;100,600"

We ll encrypt the string with a known and fixed key (horribly weak, but it serves a purpose), then convert the resulting bytes through Base32 to generate the final key

The application can then reverse this process (base32 to real number, decrypt, decode the points) and then check each of those points is on our secret graph.

Its a fairly small amount of code which would allow for a huge number of unique and valid keys to be generated

It is however very much security by obscurity. Anyone taking the time to disassemble the code would be able to find the graphing function and encryption keys, then mock up a key generator, but its probably quite useful for slowing down casual piracy.

Check tis article on Partial Key Verification which covers the following requirements:

• License keys must be easy enough to type in.

• We must be able to blacklist (revoke) a license key in the case of chargebacks or purchases with stolen credit cards.

• No “phoning home” to test keys. Although this practice is becoming more and more prevalent, I still do not appreciate it as a user, so will not ask my users to put up with it.

• It should not be possible for a cracker to disassemble our released application and produce a working “keygen” from it. This means that our application will not fully test a key for verification. Only some of the key is to be tested. Further, each release of the application should test a different portion of the key, so that a phony key based on an earlier release will not work on a later release of our software.

• Important: it should not be possible for a legitimate user to accidentally type in an invalid key that will appear to work but fail on a future version due to a typographical error.

I ve not got any experience with what people actually do to generate CD keys, but (assuming you re not wanting to go down the road of online activation) here are a few ways one could make a key:

• Require that the number be divisible by (say) 17. Trivial to guess, if you have access to many keys, but the majority of potential strings will be invalid. Similar would be requiring that the checksum of the key match a known value.

• Require that the first half of the key, when concatenated with a known value, hashes down to the second half of the key. Better, but the program still contains all the information needed to generate keys as well as to validate them.

• Generate keys by encrypting (with a private key) a known value + nonce. This can be verified by decrypting using the corresponding public key and verifying the known value. The program now has enough information to verify the key without being able to generate keys.

These are still all open to attack: the program is still there and can be patched to bypass the check. Cleverer might be to encrypt part of the program using the known value from my third method, rather than storing the value in the program. That way you d have to find a copy of the key before you could decrypt the program, but it s still vulnerable to being copied once decrypted and to having one person take their legit copy and use it to enable everyone else to access the software.

CD-Keys aren t much of a security for any non-networked stuff, so technically they don t need to be securely generated. If you re on .net, you can almost go with Guid.NewGuid().

Their main use nowadays is for the Multiplayer component, where a server can verify the CD Key. For that, it s unimportant how securely it was generated as it boils down to "Lookup whatever is passed in and check if someone else is already using it".

That being said, you may want to use an algorhithm to achieve two goals:

• Have a checksum of some sort. That allows your Installer to display "Key doesn t seem valid" message, solely to detect typos (Adding such a check in the installer actually means that writing a Key Generator is trivial as the hacker has all the code he needs. Not having the check and solely relying on server-side validation disables that check, at the risk of annoying your legal customers who don t understand why the server doesn t accept their CD Key as they aren t aware of the typo)
• Work with a limited subset of characters. Trying to type in a CD Key and guessing "Is this an 8 or a B? a 1 or an I? a Q or an O or a 0?" - by using a subset of non-ambigous chars/digits you eliminate that confusion.

That being said, you still want a large distribution and some randomness to avoid a pirate simply guessing a valid key (that s valid in your database but still in a box on a store shelf) and screwing over a legitimate customer who happens to buy that box.

The key system must have several properties:

• very few keys must be valid
• valid keys must not be derivable even given everything the user has.
• a valid key on one system is not a valid key on another.
• others

One solution that should give you these would be to use a public key signing scheme. Start with a "system hash" (say grab the macs on any NICs, sorted, and the CPU-ID info, plus some other stuff, concatenate it all together and take an MD5 of the result (you really don t want to be handling personally identifiable information if you don t have to)) append the CD s serial number and refuse to boot unless some registry key (or some datafile) has a valid signature for the blob. The user activates the program by shipping the blob to you and you ship back the signature.

Potential issues include that you are offering to sign practically anything so you need to assume someone will run a chosen plain text and/or chosen ciphertext attacks. That can be mitigated by checking the serial number provided and refusing to handle request from invalid ones as well as refusing to handle more than a given number of queries from a given s/n in an interval (say 2 per year)

I should point out a few things: First, a skilled and determined attacker will be able to bypass any and all security in the parts that they have unrestricted access to (i.e. everything on the CD), the best you can do on that account is make it harder to get illegitimate access than it is to get legitimate access. Second, I m no expert so there could be serious flaws in this proposed scheme.

If you aren t particularly concerned with the length of the key, a pretty tried and true method is the use of public and private key encryption.

Essentially have some kind of nonce and a fixed signature.

For example: 0001-123456789

Where 0001 is your nonce and 123456789 is your fixed signature.

Then encrypt this using your private key to get your CD key which is something like: ABCDEF9876543210

Then distribute the public key with your application. The public key can be used to decrypt the CD key "ABCDEF9876543210", which you then verify the fixed signature portion of.

This then prevents someone from guessing what the CD key is for the nonce 0002 because they don t have the private key.

The only major down side is that your CD keys will be quite long when using private / public keys 1024-bit in size. You also need to choose a nonce long enough so you aren t encrypting a trivial amount of information.

The up side is that this method will work without "activation" and you can use things like an email address or licensee name as the nonce.

I realize that this answer is about 10 years late to the party.

A good software license key/serial number generator consists of more than just a string of random characters or a value from some curve generator. Using a limited alphanumeric alphabet, data can be embedded into a short string (e.g. XXXX-XXXX-XXXX-XXXX) that includes all kinds of useful information such as:

• Date created or the date the license expires
• Product ID, product classification, major and minor version numbers
• Custom bits like a hardware hash
• Per-user hash checksum bits (e.g. the user enters their email address along with the license key and both pieces of information are used to calculate/verify the hash).

The license key data is then encrypted and then encoded using the limited alphanumeric alphabet. For online validation, the license server holds the secrets for decrypting the information. For offline validation, the decryption secret(s) are included with the software itself along with the decryption/validation code. Obviously, offline validation means the software isn t secure against someone making a keygen.

Probably the hardest part about creating a license key is figuring out how to cram as much data as possible into as few bytes as possible. Remember that users will be entering in their license keys by hand, so every bit counts and users don t want to type extremely long, complex strings in. 16 to 25 character license keys are the most common and balance how much data can be placed into a key vs. user tolerance for entering the key to unlock the software. Slicing up bytes into chunks of bits allows for more information to be included but does increase code complexity of both the generator and validator.

Encryption is a complex topic. In general, standard encryption algorithms like AES have block sizes that don t align with the goal of keeping license key lengths short. Therefore, most developers making their own license keys end up writing their own encryption algorithms (an activity which is frequently discouraged) or don t encrypt keys at all, which guarantees that someone will write a keygen. Suffice it to say that good encryption is hard to do right and a decent understanding of how Feistel networks and existing ciphers work are prerequisites.

Verifying a key is a matter of decoding and decrypting the string, verifying the hash/checksum, checking the product ID and major and minor version numbers in the data, verifying that the license hasn t expired, and doing whatever other checks need to be performed.

Writing a keygen is a matter of knowing what a license key consists of and then producing the same output that the original key generator produces. If the algorithm for license key verification is included in and used by the software, then it is just a matter of creating software that does the reverse of the verification process.

To see what the entire process looks like, here is a blog post I recently wrote that goes over choosing the license key length, the data layout, the encryption algorithm, and the final encoding scheme:

https://cubicspot.blogspot.com/2020/03/adventuring-deeply-into-software-serial.html

A practical, real-world implementation of the key generator and key verifier from the blog post can be seen here:

https://github.com/cubiclesoft/php-misc/blob/master/support/serial_number.php

Documentation for the above class:

https://github.com/cubiclesoft/php-misc/blob/master/docs/serial_number.md

A production-ready open source license server that generates and manages license keys using the above serial number code can be found here:

https://github.com/cubiclesoft/php-license-server

The above license server supports both online and offline validation modes. A software product might start its existence with online only validation. When the software product is ready to retire and no longer supported, it can easily move to offline validation where all existing keys continue to work once the user upgrades to the very last version of the software that switches over to offline validation.

A live demo of how the above license server can be integrated into a website to sell software licenses plus an installable demo application can be found here (both the website and demo app are open source too):

https://license-server-demo.cubiclesoft.com/

Full disclosure: I m the author of both the license server and the demo site software.

There are also DRM behaviors that incorporate multiple steps to the process. One of the most well known examples is one of Adobe s methods for verifying an installation of their Creative Suite. The traditional CD Key method discussed here is used, then Adobe s support line is called. The CD key is given to the Adobe representative and they give back an activation number to be used by the user.

However, despite being broken up into steps, this falls prey to the same methods of cracking used for the normal process. The process used to create an activation key that is checked against the original CD key was quickly discovered, and generators that incorporate both of the keys were made.

However, this method still exists as a way for users with no internet connection to verify the product. Going forward, it s easy to see how these methods would be eliminated as internet access becomes ubiquitous.

All of the CD only copy protection algorithms inconvience honest users while providing no protection against piracy whatsoever.

The "pirate" only need to have access to one legitimate cd and its access code, he can then make n copies and distribute them.

It does not matter how cryptographically secure you make the code, you need to supply this with the CD in plain text or an legitimate user cannot activite the software.

Most secure schemes involve either the user providing the software supplier with some details of the machine which will run the software (cpu serial numbers, mac addresses, Ip address etc.), or, require online access to register the software on the suppliers website and in return receive an activitation token. The first option requires a lot of manual administration and is only worth it for very high value software, the, second option can be spoofed and is absolutly infuriating if you have limited network access or you are stuck behind a firewall.

On the whole its much easier to establish a trust relationship with your customers!

You can use and implement Secure Licensing API from very easily in your Software Projects using it,(you need to download the desktop application for creating secure license from https://www.systemsoulsoftwares.com/)

1. Creates unique UID for client software based on System Hardware(CPU,Motherboard,Hard-drive) (UID acts as Private Key for that unique system)
2. Allows to send Encrypted license string very easily to client system, It verifies license string and works on only that particular system
3. This method allows software developers or company to store more information about software/developer/distributor services/features/client
4. It gives control for locking and unlocked the client software features, saving time of developers for making more version for same software with changing features
5. It take cares about trial version too for any number of days
6. It secures the License timeline by Checking DateTime online during registration
7. It unlocks all hardware information to developers
8. It has all pre-build and custom function that developer can access at every process of licensing for making more complex secure code