Cryptocurrency is managed via a range of digital keys and addresses that stand for the ownership of digital tokens. Anyone is able to deposit crypto tokens to a crypto wallet knowing just its public address. Although clients may have crypto deposited into their addresses, they can’t access and withdraw them if they don’t have a unique private key.
As its name suggests, a private key is a secret string of numbers used in cryptography that is similar to a password from your email or banking account. In crypto, their duty is to sign transactions and determine the ownership of blockchain network addresses. It is an essential segment of all tokens, with the purpose of protecting crypto holders from unauthorized attempts to access funds or potential thefts.
Understanding Private Keys
A private key is a long, randomly produced mix of digits and letters. For the sake of simplicity, it’s typically presented as a string of alphanumeric characters. It stands for ultimate control, as well as ownership, of crypto tokens. For that reason, it’s essential that users take meticulous care of it to avoid losing or compromising it, as it may have dire consequences.
Private keys may take several different forms. In a typical base-ten notation, they can be hundreds of figures long, so that they’re almost impossible to crack. It might take several years to crack them using brute force.
How Private Keys Work
In order to access your email or social media or any other account, you need to come up with a strong password. Private keys function in the same way. They are used to generate a digital signature that can be confirmed and verified, but without actually revealing the key.
In crypto transactions, they are also used to prove the ownership of a blockchain network address.
How to Store Private Keys
You can store your private key in several different ways — on your computer or smartphone, USB stick, on a specialized hardware wallet, or even on paper. The best way would depend on how frequently you will use your crypto tokens.
For daily use, your password-protected smartphone or computer is undoubtedly the most convenient. However, for long-term or so-called “cold” storage, private keys should be stored offline, preferably on devices that don’t connect to the internet and thus can’t be compromised. Hardware wallets are an acceptable option as they can alleviate storage by signing transactions by not compromising private keys.
Private Key Vs Public Key
Unlike a private key that serves as a personal password, a public key represents a code that enables crypto holders to receive tokens to their accounts. Both public and private keys are necessary for maximum security in the crypto industry.
Whenever a user starts their transaction, a pair of public and private keys is made. Both of them consist of alphanumeric characters which are supposed to keep a user’s token secured.
Source: Coinsource
Only the user is familiar with their private key, as it functions as their digital ID. It enables a user to transfer, spend, withdraw, or perform any other transaction from their account. To generate a public key, a complex algorithm is applied to a private key, only for both to be stored in a digital wallet.
Prior to broadcasting, the transaction has to be signed digitally with the private key. This signature certifies the ownership without disclosing the private key details to anyone. Given the fact that the user’s public key is obtained from the private key, it’s used to confirm the digital signature stems from their private key.
As soon as the transaction is confirmed as valid, the funds are transferred to the receiver’s public address.
What Is a Public Address?
Since the public key is formed from an excessively long sequence of numbers, it is compressed to generate the public address. Therefore, we can say that a public address is a hashed variant of a public key.
To sum, the private key creates the public key, which further forms the public address.
Digital Wallet
So far, you’ve learned that in order to send or receive crypto, you must come up with or remember your own key pairs. Digital wallets are here to fairly facilitate this process. They don’t only automatically generate key pairs but they also keep them safe.
Whenever a transaction is started, the wallet produces a digital signature by processing the transaction using the private key. This maintains a secure system as using the private key is the only way to create a valid signature for any transaction.
This signature is used to verify that a transaction arrives from a particular user, and makes sure that it can’t be altered or aired. In case it is changed even slightly, the digital signature won’t be correct.
If in the worst-case scenario you happen to lose your private key, you won’t be able to access your wallet. This further means that you can’t transfer, withdraw, or spend your tokens. Therefore, it is pivotal to save your private key in a secure location that won’t be compromised in any way.
Source: BusinessTech Weekly
Paper wallets
You can choose from a number of different ways for storing your key in a digital wallet. You can store your private key on a paper wallet printed in the form of a QR code. Whenever you want to do the transaction, just scan the code to sign in.
Hardware (cold) wallets
If paper wallets aren’t handy enough for you, you can opt for hardware wallets and store your key on a USB device or smartcard, or even offline software. Such wallets generate the private key offline, then store the private key on an offline partition. Public keys, however, are stored on an online partition.
Whenever you use a hardware wallet, the transaction is moved offline so that you can sign in digitally, then returned online to be aired on the blockchain network.
Hot wallets
If you prefer constant access to your keys, then hot wallets are the best choice for you. Hot wallets keep your keys or your computer or smart device that connects to the internet. Here you can choose from desktop wallets, mobile wallets, and web-based wallets.
Custodial wallets
There are third parties akin to a bank that offer to keep your keys for you. They help you bypass the complexity of storing your keys by relying on the technological experience and expertise of the service provider.
You shouldn’t be concerned about the safety of your keys as long as custodial wallet services are provided by a reliable and trustworthy company. CEX.IO takes exquisite care about the security of your private keys and maintains responsibility for it.
Therefore, you can relax and not worry about the safety of your keys while enjoying the crypto trading.
The Bottom Line
Private keys represent a long string of alphanumeric characters that serve as your personal password you use whenever you want to make any crypto transactions. Without them, you won’t be able to access your tokens, so any withdrawal, sending, or trading won’t be possible.
Proper storing of your key is fundamental because if you lose it, you won’t be able to ever access your tokens. To facilitate the process of transferring crypto and storing your keys, digital wallets have been created.
Disclaimer: For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.
