What is a Private Key?
|— The most important decision you will make when owning crypto is how to manage your private keys. |
— Private keys allow you to access the blockchain address, where your assets are stored. They are also a part of the data stored on the blockchain.
— When you have access to your private keys, you can access and manage your assets. That’s why it is absolutely essential to keep your private keys safe.
— One of the best storage methods for private keys is a hardware wallet. It keeps your private key secure and also allows you to make transactions.
You are now at a crucial step of your crypto journey: the one where you learn how ownership works on the blockchain. Here, we answer one of the most important questions in crypto – What’s a private key?
Blockchain has revolutionized the idea of ownership by creating a publicly accessible, digital storage space in which you can secure your assets. But this system has its own norms, rules, and risks. So, understanding these aspects is the absolute minimum if you intend to utilize blockchain and cryptocurrencies.
In this lesson, we dive into the central focus of blockchain ownership, the thing that gives you complete access and control of your crypto: the private key.
How Do Private Keys Work?
Managing a blockchain address using private and public keys works similarly to a mailbox. The mailman can find your location and insert letters through the letter slot using the mail address (public key). However, the only person that can retrieve the contents from the mailbox is the one who owns the mailbox key (private key).
In this scenario, the mail address works as your “public key”, the mailbox key works as your “private key,” and the letters as cryptocurrency or NFTs. Anyone with your public key can send you crypto – but only you, the person with the private key, can actually access the blockchain address and the funds stored in it. This is what makes you the owner – making it the pivotal element of securing your blockchain assets.
Public key vs Private Key, What’s the Difference?
Even though the public and private keys are closely linked to each other, they serve different purposes. Let us look at the three important operating rules:
- One private key can generate several public keys. (or receiving addresses)
- Only the owner of the corresponding private key can access the funds sent to the publicly available addresses.
- It’s possible to recover the public key if you own the private key. However, it’s impossible to find the private key using only the public key. This is what keeps your assets safe.
Here’s the most important part: if you lose your private key, you lose your funds. Because you can no longer access the wallet to spend, withdraw or transfer coins without the private key. As we have mentioned previously, if you don’t own your private keys, you don’t own your crypto. Only complete ownership of your private keys allows you true financial freedom.
How is the Private Key Different from the Seed Phrase?
The private key is a long and complicated string of alphanumeric characters. On the other hand, a seed phrase or recovery phrase is a set of 12, 18, or 24 random words, that is generated each time a crypto wallet is created.
While a private key enables you to access the funds stored at your blockchain address, the seed phrase is the “master key” of all your crypto accounts. Even if you lose your crypto wallet, you can still recover all your assets with the help of a seed phrase.
Why are Private Keys Important?
When you buy cryptocurrencies on a crypto exchange, the assets directly go to your exchange wallet. In this method, a blockchain address will not be created and as a result, you will not have separate public and private keys. The crypto exchange manages your keys and gives a password to access the platform.
However, you will not have control over your funds this way. You would have to completely rely on the exchange platform to access and transfer funds. In this method, you don’t really own your crypto and the platform can restrict your activity.
These are the reasons why it is important to have your own private keys. As per the popular saying in the crypto world, “not your keys, not your coins”, having private keys is absolutely essential to have complete control over your funds. When you have private keys, you can access, spend, and transfer funds as per your needs, without depending on any third-party or intermediary platforms.
How to Keep Your Private Key safe?
Now that you understand why you have to secure and own your private keys, let’s discuss how to store your private keys. There are many ways to securely store your private keys while maintaining ownership of your crypto assets. But the most common one is to use crypto wallets.
A crypto wallet is like the control panel for your coins and tokens. It allows you to interact with the blockchain network, and control the crypto assets stored at your blockchain address.
Unlike physical money, your coins don’t live inside the crypto wallet. They live on the blockchain, and the wallet just contains the private key for your blockchain address. It is absolutely central to your crypto security and will define the experience you have as you explore the blockchain ecosystem.
The hardware wallet is a physical device that will help you keep your private keys offline. The major advantage of using a hardware wallet is it provides robust security to your private keys by completely storing them offline.
Hardware wallets avoid online thefts and hacks as they remain disconnected from the internet. However, when compared to online wallets, hardware wallets are less convenient in terms of accessing and managing your funds.
Never store your private keys online
Storing your private keys online may be convenient but it can be risky. When you enter your private keys on internet-connected devices, your keys are prone to online hacks, thefts, and other types of cyber crimes. Once the malicious actor gets hold of your private keys, your funds will be lost forever.
Examples of Blockchain Private Key
A blockchain private key is a randomly generated number with hundreds of digits. However, for simplicity, they are represented as a string of alphanumeric characters. The private and public keys of Bitcoin and Ethereum are generated using the Elliptic Curve Digital Signature Algorithm. Let us look at the example of private keys of different blockchains.
Ethereum private key
Ethereum private key is made up of 64 hexadecimal characters.
Example – afdfd9c3d2095ef696594f6cedcae59e72dcd697e2a7521b1578140422a4f890.
Bitcoin private key
Bitcoin private key is a 256-bit number that can be represented in several ways.
Example – E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262.
How to Recover a Private Key
If you lose your private key, you will lose access to your crypto wallet, the blockchain address, and the stored funds forever. However, the seed phrase or recovery phrase will help you regain access in this scenario.
When you enter the 24 words or your seed phrase (provided you have already noted the 24-word seed phrase when you set up your crypto wallet), you can recover all the private keys to the new device or crypto wallet. As a result, you can also recover and access crypto assets.
Seed phrase storage
Since the seed phrase is the master key of all your private keys and funds, it is essential to store it securely and correctly. From writing the phrase in the correct order to storing it using a safe storage medium, you need to take extra care when storing your seed phrase.
Never keep your seed phrase on internet-connected devices. And, if you write it down on paper, ensure to keep it away from fire and water damage. You can even use steel backups and make them resistant to fire, water damage, and other physical threats.
Do Centralized Crypto Exchanges Give Private Keys?
In short, No. Centralized crypto exchanges do not give you private keys for your funds. They store your private keys on their servers and allow you to access the exchange platform and the funds with a password. Some of the crypto exchanges provide features like 2-factor authentication for additional security.
Self-Custody of Private Keys
When you have self-custody of your private keys, you will have complete control over your keys and your funds. You do not have to depend on any intermediary platform to make crypto transactions.
To experience the true financial freedom that blockchain and crypto provide, hardware wallets are the best option. They store your private keys offline and give you the maximum possible security while also allowing you to have full access to your private keys and crypto funds.
Ledger hardware wallets use advanced technology and follow best security practices to keep your funds safe. Two major types of Ledger wallets are Ledger Nano X and Ledger Nano S Plus. Buy a Ledger hardware wallet to ensure the maximum security of your crypto funds.
Stay bold, Stay Safe: A Private Key 101
So you know what a private key is – now let’s talk about exactly how to keep it safe! Check out this quick explainer with our Chief Experience Officer, Ian Rogers.