What Are Public and Private Keys in Crypto?

The cryptocurrency sector opens up many opportunities and chances for us. Still, at the same time, unfortunately, you can encounter fraud, so it is essential to treat your data responsibly. In this guide, we will discuss public and private keys in detail: What are they? What are they for? Which key can be disclosed to other users, and which can’t? And what role do public and private keys play in the security of your finances?

Key Takeaways:

• Private and public keys are used to store your data and encrypt data in transactions.
• The public key is the address of your wallet, which you can share with other people so they can send you cryptocurrency.
• The private key gives you access to your funds and cannot be shared with anyone.
• Private and public keys consist of a set of letters and numbers.

How Public Key Cryptography Works

Public key cryptography is the basis of security. What is a public key anyway?

Public key cryptography (PKC) is a powerful security method that uses a pair of mathematically related public and private keys.

First, when you create an account on a crypto exchange, you create two keys - public and private. The public key is generated and consists of a set of numbers and letters, and you can make the private key yourself (a seed phrase, for example, but we’ll talk about it later). Your public key is unique and is used as your bank card number. You share your public key so that another person can send you money. The public key is your wallet address.

The public key contains some of your private key data, which is encrypted. This is necessary to send you money so the funds go to your address.

When another person sends you money, a transaction is created. Each transaction has its unique hash, which is usually also a code consisting of letters and numbers. The hash contains information about the transaction—the sender's address, the recipient's address, the amount of money, and so on—all this data is encrypted. The hash is needed for transaction transparency and is stored in the transaction history.

So, the public key is your wallet address. It contains some private key information, but the public key does not give you access to your funds.

Public Keys vs. Private Keys

One account's private and public keys are linked mathematically and cannot exist separately. They are like two keys to one chest. The public key closes the chest, and the private key opens it and gives access to all its contents. Your private key is like a secret PIN. Only you should know it because it gives you complete control over your funds. Think of it as the key to your digital storage. The private key is encrypted in the transaction hash, making it impossible for anyone else to access.

According to the type of management, wallets can be either self-custody or custodial.

• Self-custody wallets (such as hardware wallets) give you complete control over your private key. You are the only one who can access your funds.

• Deposit wallets (like traditional banks) manage your private key on your behalf. They hold your key, and you rely on them to keep it safe.

The importance of self-storage: While it gives you complete control, self-storage means you are responsible for keeping your private key safe. There is a saying in the cryptocurrency world—"not your keys, not your cryptocurrency"—that emphasizes that you must control your private key to truly own your cryptocurrency.

What Is a Public Key?

The public key is your address. You can share it; it may be publicly available. The public key is needed to send money. Sometimes, the public key contains some encrypted data from the private key. It is also worth noting that the same key allows you to create a blockchain address. Typically, your blockchain address is a hashed version of this public key.

What Is a Private Key?

As we have already said, the private key is used to access your wallet. If we go into detail about private key cryptography, your cryptocurrency is not stored in your crypto wallet but on the blockchain (all cryptocurrency is stored on the blockchain). You simply have access to your account through a private key. Therefore, technically, you do not own cryptocurrency but the private key to your cryptocurrency account.

There can only be one private key, and you can store it only. A private key is not just access to your money; it is access to control over your wallet, actions with this wallet, and the interaction of your wallet with others. Most crypto wallets use your private key to create your public key.

The Role of Public and Private Keys in Crypto Transactions

To better understand the role of public and private keys and private key cryptography, let's look at this using a transaction example:

If you want to transfer money to someone, you create a transaction, or your crypto wallet creates a transaction. In addition to money, this transaction contains data: the recipient’s address (corresponding public key), the amount of money, and your address. To ensure the reliability of this data, a digital signature is created using your private key (of course, everything is encrypted). Next, this transaction is processed by network nodes; the nodes check the digital signature and check whether there are enough funds in your account to make this transfer. In the case of custodial wallets, your keys are stored by the exchange or service provider, who signs each transaction as soon as the need arises.

Many users prefer custodial wallets because it removes responsibility, and regaining access to an account is as easy as recovering a password. But you must remember that by giving your private key to someone, you are giving them access to your account, and the custodial service may make transactions without your consent, lose your money, or restrict access to your assets. Therefore, many people choose to store their cryptocurrency independently, choosing a wallet not associated with storage.

Protecting Your Private Keys

Never share your private key with anyone; you only have one private key for your account. This includes friends, family, or even seemingly reputable online services. Once shared, your funds are potentially compromised.

For more extensive holdings, consider offline storage of your private keys. This ensures they are not accessible through online hacking attempts.

A standard method for securing your private keys is through seed phrases or recovery phrases. These are lists of words generated by your wallet that when entered correctly, allow you to recover your private keys in case of device loss or corruption. Keep these phrases safe and offline, written on paper and stored securely.

Hardware wallets offer an extra layer of security. These physical devices store your private keys offline and require a physical interaction to authorize transactions, making them significantly more resistant to hacking attempts.

By following these measures, you can ensure the safety of your cryptocurrency and protect your digital wealth.

Seed Phrases and Recovery Phrases

A seed phrase, also known as a seed recovery phrase, backup seed phrase, or mnemonic phrase, is a sequence of random words that stores the data required to access or recover cryptocurrency on blockchains or crypto wallets.

This phrase is generated by the wallet software and is encouraged to be recorded on paper for safekeeping. This is particularly useful in hardware breakdowns or file corruption scenarios, where users can reinstall the required wallet software and regain access to their assets via paper.

Conclusion

That's all. We have covered all the essential aspects of public and private keys. These keys are the basis of your security, the security of your money, and the basis for making transactions and storing transaction data. Carefully store your secret key or write it down on paper. The crypto industry does not exclude scammers, but you can rest easy if you know the security basics.

FAQs

How do I get a private key for crypto?

You create a public-public-private pair when registering on a crypto exchange or creating an account on a crypto wallet.

How do blockchains use private and public key cryptography?

Blockchains use public and private keys to encrypt data about users and their transactions.

What is the purpose of public keys in cryptocurrency?

Public keys in cryptocurrencies serve as the equivalent of a bank account address. The public key is needed so other network participants can send you money.

What does a crypto private key look like?

The private key can consist of letters and symbols or a seed phrase composed of 12 random words.