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This question was answered by @BrookDO:
Is there a chance your key file has a comment line that looks like this?
Comment: "1023-bit RSA, converted by sammy@localhost.digitalocean from "Try removing that if so.You may also want to increase your log level by adding this to the top of your
proftpd.confTraceLog /path/to/proftpd-trace.log Trace ssh2:20 sftp:20