What Are Public and Private Keys?
To comprehend how crypto transactions function, you must first comprehend how public and private keys interact.
Bitcoin and other cryptocurrencies rely on public and private keys to function. They enable you to transmit and receive cryptocurrencies without the need for third-party verification.
The public-key cryptography (PKC) framework includes these keys. You can send your cryptocurrency to anyone, anywhere, at any time with these keys. As a key pair, the public and private keys fit together. You can share your public keys to receive transactions, but you must keep your private keys private.
Anyone who has access to the private keys also has access to any cryptocurrency linked to those keys.
- What Is Public-Key Cryptography?
- What Is a Public Key?
- What Is a Private Key?
- What Does It Mean to “Digitally Sign” a Transaction?
- Where Are My “Private Keys?”
- Public and Private Keys Control Your Crypto
What Is Public-Key Cryptography?
PKC (public-key cryptography) is an asymmetric encryption method for verifying the authenticity of anything. PKC was originally designed to encrypt and decrypt messages. This technique is being used to encrypt and decrypt transactions in cryptocurrency. Cryptocurrencies would not be conceivable without PKC.
PKC relies on “trapdoor functions,” which are one-way mathematical functions that are simple to solve in one direction but nearly impossible to crack in the other. While reverse engineering these services would be possible, it would most likely require a supercomputer — and thousands of years — to do it.
What Is a Public Key?
You can receive cryptocurrency transactions using a public key. It’s a private key that’s linked with a cryptographic code. While anyone can send transactions to the public key, you’ll need the private key to “unlock” them and show that you own the bitcoin that was received.
An address, which is merely a shortened form of your public key, is usually the public key that can receive transactions.
As a result, you can freely distribute your public key without fear of being exposed. You may have come across contribution pages for content creators or nonprofits on the internet that included the public keys to their crypto addresses. While anyone can donate, the secret key is required to unlock and access the funds.
What Is a Private Key?
One important piece of advice to keep in mind is to never disclose your private key with anyone. A private key allows you to prove ownership of your public address or spend monies related with it. A private key can come in a variety of shapes and sizes:
- 256 character long binary code
- 64 digit hexadecimal code
- QR code
- Mnemonic phrase
A private key, in whatever form, is an astronomically enormous number, and it’s large for a purpose. While you can produce a public key from a private key, the one-way “trapdoor” function makes it nearly impossible to accomplish the converse. A private key can be linked to an unlimited number of public keys.
What Does It Mean to “Digitally Sign” a Transaction?
A transaction on the blockchain must be signed in order to be complete. To send you a transaction, follow these steps:
- A public key is used to encrypt a transaction. The transaction can only be decrypted with the private key that comes with it.
- The transaction is then signed with the private key, proving that it hasn’t been tampered with. The digital signature is created by mixing the transaction’s private key with the data being delivered.
- Finally, the transaction’s authenticity can be checked using the public key that accompanies it.
To verify you’re the rightful owner of the funds, you digitally sign a transaction. Transactions are automatically checked and authenticated by nodes. The network rejects any transactions that are not authenticated. A blockchain transaction that has been verified and mined is irreversible.
Where Are My “Private Keys?”
Your private keys are stored in a cryptocurrency wallet, which is either software or a specific hardware device that may be used on a mobile or desktop computer.
The cryptocurrency blockchain network does not store your private keys. If you store bitcoin on an exchange, the exchange becomes the custodian of your private keys; you’re entrusting it with your keys in the same way you would entrust your gold to a bank’s vault.
You retain custody of your keys if you move your cryptocurrency from an exchange to a non-custodial wallet. Because of the configuration and operation of bitcoin wallets, you’ll almost never have to deal with private keys directly because wallets manage them for you. As a backup, you’re usually provided a seed phrase that encodes your private keys.
Public and Private Keys Control Your Crypto
Understanding how public and private keys interact is crucial to comprehending how cryptocurrency transactions occur. When you say you have cryptocurrencies, what you really mean is that you have a private key that validates your ownership.
Because it’s on the blockchain, anyone may use your public key to verify that you’re the owner.
The decision to “keep your own keys” or entrust them to a custodian is influenced by your philosophy, risk tolerance, and a variety of other variables. If you have your own private keys, look at contemporary HD wallets, which can help you manage them effectively, and remember not to share them.
If you go with a custodial solution like an exchange, make sure you go with a respectable, trusted company that prioritizes security and regulation.