One of the most significant and well-known tools used in cryptocurrency is something called a ‘private key.’ When you are learning about the industry – especially anything pertaining to blockchain technology – this is a term that is frequently brought up.
What is it exactly?
A private key is defined as a sophisticated innovation of cryptography that grants its users the ability to access their cryptocurrency. In the context of Bitcoin, it is essentially a secret number that allows bitcoins to be spent in the first place. It is a basic – but still important – element of Bitcoin and altcoins. Moreover, its security framework assists in the protection of the user against thefts and any unauthorized access to funds.
When it comes down to it, a private key is basically a type of “ticket” that allows users to spend their coins, so it is crucial that they are kept in a secure place. They can easily be kept on a computer file, however in some cases, they are short enough to be printed out on paper.
When one is dealing with cryptocurrency, they are customarily given both a public address and a private key to send and receive coins and/or tokens. The public address functions as where the funds are deposited into and collecte. Despite the fact that a user has tokens that are deposited into their address, they will not be able to withdraw them without the distinct private key.
A quick look at ‘public keys’
If you are at least somewhat familiar with private keys, odds are pretty good that you have seen its frequent association with ‘public keys.’ More often than not when discussing private keys, the public keys will be mentioned alongside them.
A public key is a cryptographic code that enables the user to receive cryptocurrencies into their account. It is made available to everyone through the use of a publicly accessible directory. This right here is the primary difference between the public key and 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 variety 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, that means 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 these specific keys can be stored is on a mechanism called ‘paper wallets,’ which are documents that are printed with the private key and QR (Quick Response) code on them. This way, it can be easily scanned whenever a transaction needs to be signed.
For those who do not know, QR codes are a type of barcode that can be read by any digital device and can also store information. It is most commonly used as a way to track information relating to products, and is additionally utilized frequently in marketing and advertising campaigns.
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.
The types of storage that have been mentioned are called ‘cold storage,’ which is an offline wallet designed for storing coins. 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 wallets that are web-based (ex. Coinbase).
Private keys are arguably fairly small components that aid the operations and growth in cryptocurrency, but its impacts are what make them as crucial to the system as they are.