What Is a Private Key in Crypto?
Private keys are part of the Public Key Cryptography (PKC), a type of encryption system that uses a pair of keys —private and public keys— to secure crypto. Unlike fiat money, crypto assets are not stored in a crypto wallet, rather they are stored on the blockchain and designated with a blockchain address.
It is a randomly generated long string of numbers and letters (secret key) that secures a blockchain address. It is stored in a crypto wallet and the wallet acts as an interface to interact with a blockchain address. The private key is the proof of ownership of crypto assets that allows its holder to make transactions on the blockchain. This is why you should never share your private keys with anyone. Anybody with your private keys can access your wallet and control your crypto assets, including transferring them out of the wallet.
Furthermore, private keys should be stored in a secure location because if you lose them, you lose your digital assets.
What Are Private Keys Used For?
Private keys are essential to completing transactions like withdrawal or token transfer because they authenticate transactions. To send money to another user on the blockchain, a sender must sign the transaction with their private keys. The receiver also needs it to decrypt and unlock the token.
For example, when a user wants to send bitcoins, they use their private key to sign a transaction, which is broadcast to the network for confirmation. The private key acts as a digital signature, verifying the authenticity of the transaction. When a user wants to receive bitcoins, they provide their public address, which is derived from their private key, to the sender. The sender then uses this address to send the bitcoins to the user’s wallet, where they can be accessed with the corresponding private key.
Private keys also generate public keys and addresses for receiving crypto. Your public address is what you give other users to receive funds. The private and public key works similar to a mailbox address and key. The mailbox can receive letters/packages from mailmen but only the owner with the key can retrieve the content. The public address is like the mailbox address and the private key is the mailbox key. The public address receives crypto assets from other users but only the person with the key can unlock and control the assets.
Examples of Private Key in Cryptocurrency
Private keys are randomly generated long strings of binary numbers. But for simplicity, they are represented with alphanumeric characters.
A Bitcoin private key is usually a 256-bit number represented in the format below:
An Ethereum private key is usually represented as 64 hexadecimal characters.
How To Store Private Keys
The best place to store your private keys depends on how often you plan to interact with your assets. Custodial wallets and hot wallets are easy for everyday use and to regain access if you lose your wallet. However, they are prone to higher security risks, hacks, and third-party failures.
Non-custodial and cold wallets have lower security risks because you control your private keys. Cold wallets (Hardware wallets) are your best bet to safeguard your keys without compromising convenience. Note that you should not share your private keys with anyone, be mindful of emails or sites that ask for your private keys.
Learn more about the best place to store and secure your crypto wallets and private keys.