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Private Key: Keep Your Crypto Secret

May 25, 2020
5 min
Private Key: Keep Your Crypto Secret
Beginner
You will learn

    The blockchain is based on asymmetric, or public key cryptography. Let’s find out how this affects cryptocurrency custody via wallets.

    What are wallet keys?

    We have already explored cryptography and its history, but in order to navigate the blockchain with awareness, it is essential to know how wallet keys work.

    The private key, from which all other cryptographic codes are derived, is used to secure and validate transactions, and to safely store cryptocurrencies. These are properly stored in a wallet. Only those who have the private key of a certain wallet can access it.

    However, asymmetric encryption works with a key pair: one is the private key and the other is the public key.

    The difference between public key and private key is that the former is a code derived from the latter, via a cryptographic function. Since the function is unidirectional, it is in no way possible to inversely obtain the private key by knowing only the public key.

    Private and public keys are generated when a wallet is created. No two private keys or two public keys are the same.

    The Private Key: Your Password

    It is a long, unique alphanumeric code, i.e. mathematically generated strings of random characters, and can be regarded as a password giving access to one’s wallet.

    That’s what a private key looks like: 

    534EL5ntg8oh34o5KE34534jnl3qtWqF45o3O4JK34h4thapfnqc8tgpnap

    The private key is also required as a digital signature and to confirm transactions. Thus, only the person who possesses the wallet’s private key can authorise the transfer of cryptocurrencies to someone else’s wallet. 

    Protect your Private Key

    Each private key can only generate one public key, representing both the origin and the password of the address. Therefore, when a wallet is created and a private key is generated, it must immediately be stored in a safe place and not shared with anyone. 

    If you are afraid of losing your private key, an exchange is an ideal solution. Young Platform, for instance, provides its users with a personal wallet when they create an account, holding the private key for them. Access to the wallet in this case is the same as for any other account, with an e-mail and a password. Exchanges are a guarantee in case you lose your credentials because, thanks to the fact that they guard your private key, they can recover your cryptocurrencies. Some web services and apps do the same thing.

    If, on the other hand, you are a seasoned trader and wish to manage your wallet keys yourself, cold wallets are for you.

    All types of private key

    In each type of wallet application, the private key is provided in the form of several codes called by different names.

    When you read the terms passphrase, seed phrase, or seed recovery phrase, know that you must treat these strings like any private key: store them safe from prying eyes and do not lose them.

    Public key and address: what’s the difference?

    What differentiates a public key and public address when we talk about cryptocurrency wallets? Let’s explore this together:

    The public key: your account number

    We now know that to use your funds and access your wallet, you need a private key. But say if a friend wanted to send you cryptocurrencies, where should he send them? This is where the second key comes in: the public key. This is a long unique alphanumeric code, generated from the private key. This is what a public key looks like:

    fivq40MB92kfè94mah3453tgè85g5gyqgyqiughvqn40

    Public keys have relevance especially at the level of blockchain and cryptography. We can compare it to a bank account number, whereas the public address works like an iban (which also contains the bank account number). It’s the address that we have to share with those who want to send us cryptocurrency.

    The wallet address: your iban

    A wallet address (also called ‘public address’) is a set of numbers and letters. This for example is the genesis address of Bitcoin, i.e. the first one created in the history of cryptocurrencies:

    1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa

    When an exchange takes place between two wallets, the transaction is shown to the network nodes:

    • the sender’s public key
    • a digital signature – different each time – obtained by means of the sender’s private key
    • the address of the target portfolio

    The sender’s public key combined with the digital signature allows each node in the network to verify the transaction, then approve it and record the data on the blockchain.

    To learn more about how a crypto transaction takes place, consult out article on how the peer-to-peer network of a blockchain works.

    Creating a wallet and thus an address is in many cases free of charge, and you can generate as many wallets as you want and need.

    There are also shared wallets that require confirmation by more than one person or entity. These are the multi-signature wallets, used for instance in decentralised organisations to use budgets for collective projects.

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