Have you ever wondered how you can securely exchange and store cryptocurrencies? The answer lies in the concept of public and private keys.
These keys are the equivalent of a physical wallet holding your money. Understanding the difference between them is crucial for anyone who wants to invest or trade cryptocurrencies.
In this discussion, we’ll explore public and private keys, how they work together, and why they are essential for securing your digital assets.
What Is a Public Key?
A public key is a unique cryptographic code for receiving crypto transactions. You must pair it with a private key to unlock and access the funds received in the transaction.
Although anyone can send transactions to a public key, only the owner of the corresponding private key can claim and use the cryptocurrency received.
Typically, you see the public key that you use to receive transactions in a shortened form known as an ‘address.’
You can share this address freely, as it does not provide direct access to the cryptocurrency stored within it.
For example, content creators or charities may share their public key addresses on donation pages to receive funds from their supporters. But, only the rightful owner of the corresponding private key can access and use the funds donated to that address.
What Is a Private Key?
The private key provides the ability to prove ownership and spend the funds associated with the public address.
A private key can take many forms, including a 256-character binary code, a 64-digit hexadecimal code, a QR code, or a mnemonic phrase.
Regardless of its form, a private key is a huge number, which is intentional to provide enhanced security. While generating a public key with a private key is possible, the opposite is impossible due to the one-way “trapdoor” function used in public-key cryptography.
You can associate a private key with any number of public keys, allowing greater flexibility in managing cryptocurrencies.
Ways to Store Your Private Keys
Securing the private key is crucial, as anyone accessing it can control the associated cryptocurrency.
There are broadly two ways to secure your private keys — Custodial and Non-Custodial Wallet.
1. Non-Custodial Wallet
Non-custodial wallets are wallets where you have full control over your private keys. This means that you are responsible for the safe keeping of your cryptocurrencies, and if you lose your private keys, you will lose access to your funds.
Non-custodial wallets provide a higher level of security and privacy, but they require more knowledge and technical skills to use.
Some examples of custodial wallets include Coinbase, Binance, and Kraken. Some examples of non-custodial wallets include MetaMask, MyEtherWallet, and Ledger.
2. Custodial Wallet
Custodial wallets, on the other hand, are wallets where a third-party service provider, such as an exchange or a wallet provider, holds your private keys on your behalf. This means the service provider has full control over your cryptos and is responsible for their safekeeping.
Beginners often use custodial wallets because they are easy to use but not as secure as non-custodial wallets.
Storing private keys on an exchange means trusting the exchange with your funds.
Exchanges have a centralized point of failure and, therefore, are vulnerable to hacks and theft. It’s always safer to store private keys in a non-custodial wallet, giving you complete control. If you must use an exchange, choose a reputable, regulated one with a strong security track record.
Consider only keeping the minimum amount of funds necessary for trading purposes.
Difference between Public and Private keys
Public and private keys are a fundamental part of the cryptography that underpins cryptocurrencies and other secure online systems.
Below are some differences between public and private keys based on different factors.
1. Functionality
Users can employ public keys to encrypt data or transactions, while private keys decrypt them.
2. Accessibility
Public keys are available to anyone on the blockchain network. In contrast, private keys are only accessible to the owner of the crypto wallet.
3. Usage
You use public keys to receive crypto transactions, while you need private keys to send them. Moreover, you can share public keys to receive funds and private keys to spend the received funds.
4. Ownership
You can use public keys to verify ownership of cryptocurrency. In contrast, private keys prove ownership and allow spending of the cryptocurrency.
How Do Public and Private Keys Work Together?
In the blockchain, the process of sending a transaction involves several steps.
1. Encryption and Decryption
First, the transaction is encrypted using the recipient’s public key.
You can only decrypt the transaction using the recipient’s private key, ensuring that only the intended recipient can access the funds.
2. Digital Signature
Next, you sign the transaction using the sender’s private key. This creates a digital signature that verifies the transaction’s authenticity and proves no one has modified it in transit.
You generate the signature by combining the sender’s private key with the data that they sent in the transaction.
3. Authentication
Once you sign the transaction, anyone can verify it as authentic using the sender’s public key. This allows the recipient and other network nodes to confirm the transaction’s validity and ensure no one has tampered with it.
Nodes in the network automatically check and authenticate transactions. If they cannot authenticate a transaction, the network rejects it. This ensures that participants only process and add valid and authorized transactions to the blockchain.
Once the network has authenticated and mined a transaction on the blockchain, it becomes irreversible. This means no one can modify or reverse the transaction, providing high security and integrity to the blockchain network.
Conclusion
The difference between public and private keys lies at the heart of how cryptocurrencies function.
Public keys are shared with others to receive transactions. In contrast, private keys are kept secret and used to sign and authenticate transactions. This is because the security of these keys is paramount to the safety of your cryptocurrency holdings.
Understanding this fundamental concept is crucial for anyone navigating the world of cryptos and blockchain technology.
By maintaining the proper precautions and utilizing trusted methods for securing your keys, you can feel confident participating in this exciting new field and potentially reap the rewards of its continued growth.
FAQs
1. What is a public key, and how is it different from a private one?
A public key is a cryptographic code allowing others to send cryptocurrency transactions. It is paired with a private key, which is used to prove ownership and spend the funds associated with the public address.
The public key is freely shareable, while the private key must be kept secure and never shared. Only the private key can unlock and access the cryptocurrency received in the transaction.
2. How are public and private keys used in cryptocurrency transactions?
Public and private keys are used to validate cryptocurrency transactions.
A transaction is encrypted using the recipient’s public key and can only be decrypted using their private key. The transaction is signed using the private key, proving it hasn’t been modified.
Finally, the transaction can be verified as authentic using the recipient’s public key. This process ensures the security and validity of crypto transactions.
3. Can someone steal my cryptocurrency by knowing my public key?
No one can steal your cryptocurrency by only knowing your public key.
The public key is used to receive cryptocurrency but cannot be used to spend or move funds. The private key is needed to access and authorize transactions.
It is crucial to keep the private key secure and not share it with anyone to prevent unauthorized access to your funds.
4. Is it safe to store my private keys on an exchange?
Storing private keys on an exchange means trusting the exchange with your funds.
Exchanges are centralized and, therefore, vulnerable to hacks and theft. It’s always safer to store private keys in a non-custodial wallet, giving you complete control. If you must use an exchange, choose a reputable, regulated one with a strong security track record.
Consider only keeping the minimum amount of funds necessary for trading purposes.
