When you buy cryptocurrency, you are issued two keys, one public and one private. These crypto keys allow you to transfer and store crypto assets securely. But how do they work? In this article by Haithem Kefi, we will discuss public keys and private keys, how they work, and how important they are for blockchain and cryptocurrencies.
Your private key is a critical piece of data. This key will enable you to make cryptocurrency transactions and access your crypto wallet and your funds. A private key is a large string with hundreds of alphanumeric characters. You can think of this key as your password to access your cryptocurrency funds.
As the name suggests, private keys are just that – private. They should not be shared with anyone because they grant access to your crypto funds.
Unlike private keys, public keys are viewable by others and can be shared. You can think of a public key as your bank account number.
The only thing anyone can do with a public key is to send funds to their wallet and check their balance. Therefore, sharing it does not present an immediate threat.
Like a private key, a public key is a long alphanumeric string of characters. Public keys are mathematically generated from their corresponding private. Nonetheless, it is virtually impossible to retrieve someone's private key from their public key. That is the reason why public keys do not need to be protected.
The address of a cryptocurrency starts with the generation of a private key. Afterward, an algorithm is used to derive its corresponding public key. The address that is available to use for transactions is a shorter form of the public key.
The private key is what grants someone ownership of the crypto funds on a given address. Your wallet will accordingly generate and store a private key for you. When you send cryptocurrency from your wallet, the transaction is signed with your private key (without revealing it), indicating to other nodes on the blockchain network that you are authorized to make the transfer from that specified address.
The one-way direction from the private key to the public address is what makes the system very secure. It is impossible to derive the public key from the address or the private key from the public key.
There are two ways that you can store your crypto keys: online in a crypto wallet or offline.
Storing your crypto keys offline means you will use devices that are not connected to the internet, making it impossible for hackers to get to those keys. While this is an effective way to protect your keys, it has its downsides. This makes crypto transactions difficult and exposes you to the risk of losing the devices with the stored keys.
A crypto wallet is the most popular and convenient way to store crypto keys. Using a crypto wallet makes trading cryptocurrencies as accessible and convenient as using your credit card online.
Blockchain being decentralized means that transactions are publicly accessible. That is why encryption becomes vital when it comes to crypto transactions. Crypto keys are what ensure that funds are safe and secure, they are the backbone of any cryptocurrency transaction.
On a blockchain, anyone can verify if you are the owner, using your crypto keys as proof, thus preventing fraud and theft.
Private keys are used for executing crypto transactions, whereas seed phrases (also known as recovery phrases) are more of a failsafe. Whenever a wallet generates a private key, it also creates a seed phrase, a unique string typically consisting of 12 to 24 words that can be used to recover a crypto wallet. If you lose your private key, or cannot access your wallet for any reason, a seed phrase could be the only hope you have to retrieve your funds.
Most importantly, private keys and seed phrases must be well protected because either one could be used to copy a wallet and withdraw funds.
Public keys and private keys are the backbone of the cryptocurrency market. This vital pair of random characters ensure your transactions are verifiable and your crypto is secure. As these tools significantly mitigate potential online attacks and threats, you must protect your private key and make sure it does not fall into the wrong hands.