What is a Private Key?
|— The most important consideration you will make when owning crypto is how to manage your private keys|
— Private keys give access to the address on the blockchain where your assets are stored – they are part of the data of the blockchain
— Access to your private key means access to your assets – it is absolutely essential that you keep it safe in order to safely store your crypto
— Storage for private keys needs to both keep the key secure and also allow you to access it to make transactions. This is a delicate balance that is best addressed by a hardware wallet.
You are now at a crucial step of your crypto journey: the one where you unpack how ownership works on the blockchain. If you only read one thing about crypto security, it should be this article.
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 is the absolute minimum if you intend to utilize blockchain yourself. Here, we dive into the central focus of blockchain ownership; the thing that gives you access and control; your private key.
Where does the private key come from?
That’s a great question.
When you buy your first crypto, you’re not only paying for a set amount of coins or tokens – you’re also creating your very own address on the blockchain. At the point of creation, the blockchain generates both public and private keys for this new address.
These keys interact cryptographically with the blockchain, allowing you to encrypt and decrypt transaction information relating to their origin address. But most importantly, the private key is what gives control over the funds stored at the address.
How does cryptography work?
Managing a blockchain address using private and public keys works kind of like a mailbox. The mailman can find your location and insert letters through the letter slot using the 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, think of the address as your “public key”, the mail box key as your “private key” and the letters as cryptocurrency or NFTs. Anyone with your public key can send you something – but only you, the person with the private key, can actually access the blockchain address and whatever has been sent to it. This is what makes you the owner – making it the pivotal element of securing your blockchain assets.
Differences Between Public and Private Keys
While they serve different purposes, public and private keys are closely linked to each other. There are 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 info sent on 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. Since you can no longer access the wallet to spend, withdraw or transfer coins. Similarly, as 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. Having your own keys does come with an important responsibility though: you must protect them.
How to protect your private key
Now that you understand why you have to secure and own your private keys, let’s get to the how. There are many ways to securely store your private keys while maintaining ownership over your crypto assets. But the most common one is to use crypto wallets.
They are tools that allow you to interact with the blockchain network. Unlike the traditional wallets we use in our everyday lives to carry bills and coins, cryptocurrency wallets don’t really store your coins or tokens. They contain your private keys instead. Your funds are actually part of the blockchain as pieces of data, and wallets allow you to access them. Through your crypto wallet, you can generate your different public keys or addresses, which enable you to receive payments.
There are different types of crypto wallets: software wallets, hardware wallets and paper wallets. While they serve the same function, they don’t provide you with the same levels of security and ownership, nor with the same features. Some are more prone to hacks, others are less intuitive yet highly secure. Some allow you to own your crypto, others don’t.
Choosing your crypto wallet carefully is very important. And the only way to do so is – without surprise – to review them all. Wanna know more about it? Our next article focuses on the pros and cons of these different wallets. Just keep going!
Knowledge is power.
GET FREE and keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block episode all about protectig your assets.