A private key is defined as a type of cryptography that grants its users the ability to access their cryptocurrency. In the context of Bitcoin, it is essentially a secret string of words, that allows bitcoins to be spent in the first place. Each time you download a cryptocurrency wallet, you receive a unique, randomly selected and ecnrypted private key, otherwise known as a “seed phrase”.
When it comes down to it, a private key is basically a type of “ticket” that allows users to transfer, spend, or otherwise access their coins from their wallets, so it is crucial that private keys are kept in a secure place.
When downloading a cryptocurrency wallet, you are customarily given both a public address and a private key to send and receive coins and/or tokens. The public address is used for depositing funds and can be viewed on a public blockchain. Once the funds are deposited, no one can access them unless they have the private key to unlock access.
A quick look at ‘public keys’
A public key is a cryptographic code in the form of a long string of numbers that enables the user to receive cryptocurrencies into their account. It is made available to everyone through the use of a publicly accessible directory called a Blockchain Explorer. This right here is the primary difference between the public key and the private key, yet they are also linked together cryptographically. Both the private and public keys are built with one-way access, meaning you can only use a public address to deposit crypto, and you can only withdraw using the private key.
The public key is constructed by way of the private key through a complex mathematical algorithm. With that said, it is next to impossible to reverse the process by producing a private key from a public key.
Wallets & Storage
The standard private key can take on several diverse forms, often depicted as a set of alphanumeric characters. This is what makes it incredibly difficult for hackers to crack. A majority of users illustrate their wallet key in a wallet import format, which consists of exactly 51 characters.
To better comprehend this particular set-up, think of the public address as a mailbox and the private key as the key that opens the box. To push this even further, the mail person will insert letters and small enough packages into the mailbox, but the only person that can actually retrieve the contents inside the box is the one that possesses the distinct key. It is very important that this unique key is kept safe because if it were to be stolen or obtained without the owner’s authorization, the box and the contents within it run the risk of being jeopardized.
A ‘digital wallet’ stashes the user’s private key. This kind of wallet, also known as an ‘e-wallet,’ is a system designed to securely store the user’s payment information and passwords for multiple websites and methods of payment. By using these wallets, users are able to go through with purchases quickly and easily with the additional feature of near-field communications technology.
When a transaction is established, the wallet’s software creates a digital signature by handling the transaction with the use of the private key. This actively maintains the secure system seeing as how the only plausible method of generating a valid signature for any transaction is to use the private key. The signature is used as a means to certify that a transaction cannot be modified once it has been showcased. If the transaction were to be changed in any way, shape, or form – even if only slightly – the signature will end up changing as well.
In the event of the user losing their private key, they can no longer access the wallet to spend, transfer, or withdraw any coins. This once again reinforces the rule that they must keep the private key in a safe and secure location.
There are a variety of ways in which a wallet that contains a private key can be stored. One way is to use a ‘paper wallet’ which is a document that is printed with the private key and/or QR (Quick Response) code on them. This way, it can be easily scanned whenever a transaction needs to be signed, but stored in a safe location otherwise.
Returning back to the topic at hand, the private keys can also be stored by employing a hardware wallet, which uses smart cards and/or USB devices to produce and then secure private keys offline. A software wallet that is offline can also be used to store private keys. This specific type of wallet has an offline divider for private keys and an online division, which is what has the public keys stored. With these offline software wallets, a more recent transaction is moved offline in order to be signed digitally, and afterwards it is then moved back online so that it can be broadcasted to the cryptocurrency network.
Hot wallets vs cold storage
Hardware wallets and paper wallets are both different types of ‘cold storage,’ which means you are storing your private keys offline. The other wallet type, known as a ‘hot wallet,’ stores private keys on devices and/or systems that are connected to the Internet. Such examples of these particular wallets include desktop wallets (ex. Electrum), mobile wallets (ex. Breadwallet), and exchange wallets that are web-based (ex. Coinbase). Additionally, any wallet that holds your private keys for you, weakens the private key as it exposes it to exchange and platform vulnerabilities. To maintain financial sovereignty over your digital assets, always remember, “NOT YOUR KEYS, NOT YOUR COIN.”