Public and private keys are integral to the use of cryptocurrencies. They not only allow people to send and receive cryptocurrencies but also to maintain the security and ownership of the funds. Private and public keys are generated when one creates a digital wallet.
What is a private key?
Every cryptocurrency wallet consists of a public key and a private key. Anyone can deposit cryptocurrency into a public address (public key), but no one except the owner of the corresponding private key can remove funds from that same account.
A private key, also known as a secret key, is a random string of numbers and/or letters used to protect one's cryptocurrency wallet and receive crypto transactions, similar to a pin code for a bank account. Private keys prove ownership of one's wallet address, protect it from unauthorized access and theft, and are used to sign transactions on the blockchain.
Private keys are used in conjunction with an algorithm to encrypt or decrypt data. The holder of the private key should be the only one who knows it, as this secrecy is what gives the private key its power. The golden rule is to keep your private key safe.
Private key vs public key
Public and private keys are mathematically linked to each other and relevant to only one blockchain wallet. A public key can be compared to your traditional bank account while the private key is akin to the pin code to access this account.
Users would share the public key with anyone looking to transfer funds to their crypto wallet, however, under no circumstances should your unique private key ever be shared with anyone. It is also strongly recommended that one stores their private key offline in a safe space, and not on a desktop or accessible location (in the event of a hack).
When one loses their private key, whether lost or maliciously taken, they will lose access to their crypto funds. Due to the decentralized nature of cryptocurrencies, there is no support line or central authority that can access that information.
This is where exchange wallets come in handy as the account is created using an identity that once verified can gain access to the funds. This is known as a custodial wallet where the platform holds the private keys for you and allows you to access the funds through a user-generated password. When it comes to storing private keys, this is the most convenient option, however, if you use an untrustworthy platform that increases your risks greatly. It is strongly recommended to enable two-factor authentication when using this option.
How do private keys work?
A public key is generated using complicated mathematics by your private key, ensuring they form a matched pair. These digital keys are created when one creates their crypto wallet on a particular blockchain.
After being generated, a private key must be stored in a secure location, ideally offline. Furthermore, private keys can have an extra layer of security by being password-protected, encrypted or hashed, ideally all three.
The owner of the public key will use the private key to encrypt the digital signature when making a transaction.
A transaction is encrypted using a public key and can only be decrypted by using the matching private key. Therefore, when someone sends a transaction they will need their private key to decrypt and prove they own the funds being used in this transaction.
The private key is used to sign the transaction, which verifies that the transaction hasn't been modified. A digital signature is created when someone combines their private key with the data that's being sent as part of a transaction.
Once the transaction has been executed the nodes on the network will check and authenticate the details of the transaction and if any information is incorrect the transaction will be rejected. Once executed transactions cannot be reversed.
Where should you store your private key?
Your private keys are essentially your passwords, so it's of utmost importance that you keep them safe. Your best bet is to store them offline somewhere safe. This might mean written on a piece of paper, stored on an offline device, or kept in a password manager. As mentioned above, public keys can be stored anywhere and shared with anyone.
To avoid the hassle and stress of ensuring the safety of your private keys at all times, you can use a hot wallet supplied through a reputable exchange. If you choose to take this route ensure that the crypto platform is regulated and adheres to stringent security measures.
In conclusion
Private keys are digital passwords used to establish one's ownership in a crypto wallet and are created in conjunction with the public key of the same wallet. One should never share their private keys with anyone.