If only Bitcoin was less technical for newbies, the crypto wallet functionality is no less complex. At Cryptohodly we try to make Bitcoin and crypto terms simpler for you to understand.
Crypto followers and buyers must have heard of private keys, public keys and wallet address. But often the beginners misunderstand these and mess up their keys. This can be dangerous. Due to misunderstanding you might be unintentionally sharing your private credentials which were not meant to be shared with others.
You must understand the mechanism and role of the private key, public key and wallet address. Unless you understand these terms you can’t handle your wallets and transactions securely.
In this blog, we have tried to decode private key, public key and wallet address into simple language.
What is private key & public key?
In a crypto wallet there are two types of keys:
- Public key
- Private key
Bitcoin as well as all cryptocurrencies are built on cryptography that uses a pair of keys. The pair of keys is used to identification of the owner of the wallet and carry out secure transactions.
The private key is just like your password which is used to send funds or cryptos. On the contrary public key is like your Paypal address which is used to only receive the funds.
A private key is a mix of numbers and letters or a form of cryptography. It allows the user or the owner of the crypto wallet to access their cryptocurrency.
Private is key as stated before is a combination of alphanumeric characters. It is very difficult for a hacker to hack it. The chance of hacking private key is 1 out of a million. But the chance of forgetting your private key is higher. That is why most people keep their private key safe in their wallet import format.
Understanding the mechanism of private key and public key
In bitcoin, we use cryptography to create a pair of keys. That is:
- Private key
- Public key
Both the private key and the public key is related to one another by mathematical equations. But on one can access or drive one key with the help of another key. Anyone with your public key can never figure out your private key.
You can share your public key with others to receive cryptos. But you should never share your private key with others.
Private keys are your personal key. In crypto wallets, the private key is used as an identification to claim the authority of the wallet. The owner of the crypto wallet with the private key has full control to send and receive transactions.
When you send a transaction from your crypto wallet, the system signs the transaction with your private key. This is to notify everyone in the blockchain network that you have the authority to transfer funds to the address that you are sending from.
The private key is what is used to prove your ownership of your crypto wallet and assets.
Moreover, you can use your private key to generate a public key. So even if you lose your public key, you can generate it anytime using the private key.
To understand the mechanism of the private key and public key you need to know asymmetric encryption.
WHAT IS ASYMMETRIC ENCRYPTION?
Let’s take an example to understand asymmetric encryption.
Imagine a situation where you need to send some important documents to Bob. Now you write this document and mail it. You have encrypted the contents of the document because it is confidential and you don’t want anyone else to read it.
When you send this document to Bob, he asks you for the code to decrypt the document.
How will you share the code?
If you share the code through message, mail or call it has the probability that someone else can hack it. So the whole purpose to securely share some confidential information with Bob goes in vain.
This is where asymmetric encryption comes into play.
In asymmetric encryption similar to the blockchain you and Bob each will have a pair of keys.
Now you both will exchange one another’s public keys. This is because you will need Bob’s public key to send the message.
Then you will use your private key to encrypt and stamp the message. Also, you will use Bob’s public key to send it. Bob will then use his private key to decode it and read the message.
Also by using Alice’s public key Bob can verify that it is really sent by Alice and not an imposter. No one else can know or read the message as he does not have Bob’s private key.
Now when you apply the same mechanism to Bitcoin cryptography, the private key is used to stamp the transaction while others use your public key to verify that it is you.
When spending bitcoins, the current bitcoin owner signs a transaction with her public key and a signature (which is different each time but is created from the same private key).
Everyone in the bitcoin network can verify and approve the transaction as valid by presenting the public key and signature, verifying that the person transferring the bitcoins owned them at the time of the transfer.
It goes somewhat like this:
Your private key +transaction = stamp/signature
This is how you stamp or process the transaction using your private key.
Your public key + transaction+ right stamp/signature = valid
This is how others in the blockchain check and verify if it is you by using your public key.
So in a nutshell:
- The public key is your bank account number. You share it with others to receive funds and verify transactions.
- The private key is your identity that is used to sign or stamp a transaction and prove your ownership.
What is wallet address?
Wallet address is like your home address. It is the address that takes you to your crypto wallet.
- A wallet address is a string of numbers and letters that are produced at random.
- There are normally 26 to 35 alphanumeric characters in this group.
- A wallet address is a one-time link that a wallet generates.
- To transfer or receive digital assets, wallet addresses are required.
We hope that this detailed guide on the private key will help you in understanding the entire process.
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