A private key is an essential component of bitcoin and altcoins, and its security features to aid in preventing theft and unauthorized access to funds. But what is a private key, and how does it function? Discover more by reading on.
What Is Private Key?
A private key, like a password, is a secret number used in cryptography. Private keys are also used in cryptocurrency to sign transactions and prove ownership of a blockchain address.
Private keys are used to authenticate asset ownership and encrypt the wallet, while public keys are used to generate public addresses. The wallet’s public address is used to identify it and to receive funds.
When you first set up a cryptocurrency wallet, you will usually be given a seed phrase of twelve words. These words represent a human-readable representation of an infinite number of possible combinations of public keys and private keys.
How Private Keys Work
Cryptocurrency is controlled by a set of digital keys and addresses that represent virtual token ownership and control. Anyone with a public address can deposit bitcoin or other tokens. However, even if a user has tokens deposited into their address, they will be unable to withdraw them unless they have the unique private key.
Private keys can take several forms. In ordinary base-ten notation, a private key would be hundreds of digits long—so long that brute force would take years to crack. Private keys are typically expressed as a string of alphanumeric characters for ease of use.
A complex mathematical algorithm is used to generate the public key from the private key. It is, however, nearly impossible to reverse the process and generate a private key from a public key. After that, a similar algorithm is used to generate a receiving address from the public key. Consider the address to be a mailbox, and the private key to be the key to the box. 1
Anyone, including the mail carrier, can insert letters and small packages through the opening in the mailbox. The only person who can retrieve the contents of the mailbox, however, is the one who has the unique key. As a result, it is critical to keep the key secure because if it is stolen or lost, the mailbox may be compromised.
Why are private keys important?
One of the cryptographic innovations that make digital money possible and secure is the system of public and private keys. Here’s how it works.
- Bitcoin and Ethereum are decentralized, which means there is no bank or other institution in the middle holding your digital money. Instead, your cryptocurrency is distributed across a network of computers using blockchain technology. The fact that crypto blockchains are open means that all public key and transaction information is visible to anyone.
- Your public key is actually generated by your private key through some complicated math, making them a matched pair. When you make a transaction with your public key, you use your private key to confirm that it is truly you.
- Even though everything is public, it is also anonymous — you do not need to provide your name, address, or any other personal information to use cryptocurrency.
- Consider the cryptocurrency Bitcoin. Even though any interested party can see when Bitcoin is bought, sold, or used, only the holder of a private key can execute those transactions.
Private Key vs Public Keys
The private key is used to perform cryptographic functions in addition to encrypting and decrypting data. Both senders and receivers use this shared encryption key to encrypt sensitive information. In addition to being the symmetric key, the private key is also known as the asymmetric key because it is held by both parties. Private key cryptography is much faster than public key encryption.
Private keys are used to decrypt data while public keys are used to encrypt it. The private key is shared by both the sender and the receiver of encrypted sensitive information. Asymmetric cryptography is another name for public key asymmetric cryptography.
Where To Store Your Private Keys?
Like any password, it’s crucial to keep your private keys safe. The two major ways to keep track of them are:
Store them online in a crypto wallet: To manage your private keys, the best and simplest option for most people is to use a virtual wallet, such as the one provided by Coinbase. Because your private keys are stored on the internet, these are referred to as “hot wallets.” This makes buying, selling, and using digital money as simple and convenient as using a credit card online. Choose a wallet from a company with a long history of security and features such as two-factor authentication.
Store them offline somewhere safe: Some investors prefer to keep their private keys on a computer that is not connected to the internet, on paper, or even memorized. This is known as “cold storage,” and while it protects your private key from digital theft, it makes using your cryptocurrency much less convenient while also introducing new risks.
Major cryptocurrencies, such as Bitcoin and Ethereum, rely on three fundamental pieces of information: the address, which is linked to a balance and used to send and receive funds, and the address’s corresponding public and private keys.
The creation of a bitcoin address starts with the creation of a private key. A well-known algorithm can then be used to calculate the corresponding public key. The address is a condensed, representative representation of the public key that can be used in transactions.
The private key grants a cryptocurrency user ownership of funds at a given address. The Blockchain wallet automatically generates and stores private keys for you.
When you send funds from a Blockchain wallet, the software signs the transaction with your private key (without revealing it), indicating to the entire network that you have the authority to transfer the funds to the address from which you’re sending.