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.
What is a private key? What does it offer? You are now at a crucial step of your crypto journey: the one where you dig into the concept of private keys and what it implies in terms of ownership, security and financial freedom.
A key that gives power
Cryptocurrency works with cryptography to encrypt and decrypt information, providing a high level of security as well as anonymity. The cryptographic system used in crypto requires 2 different-yet-related keys for this procedure: the private key and the public key.
Put simply, it works like a mailbox. The mailman can insert letters and small packages through the letter slot. However, the only person that can retrieve the contents from the mailbox is the one who owns the unique (private) key.
With crypto, everybody can send you encrypted information using the public address associated with your private key, since it’s public to all users. However, only you, as the owner of the private key, can unlock – or decrypt – the information. The goal is to prove that a spent transaction was indeed signed by the owner of the funds, and was not forged. All occurring over a public blockchain network between peers.
A key that demands responsibility
While being different, public and private keys are closely linked to each other in a way that creates 3 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
Therefore, 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.
A key you must protect
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 – so keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video What is DeFi?