Cryptocurrencies What are a private and public keys for

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Cryptocurrencies: What are a private and public keys for?

The cryptocurrency wallet is essential for working with cryptocurrencies, but they are basically just a user-friendly tool. On their background runs the so-called asymmetric cryptography, which is characterized by the use of private and public keys.

But what is the difference between these keys and what to watch out for? Continue reading this article to find out.

What is the private and the public key?

The cryptocurrency itself is not in fact stored in the wallet but remains in the blockchain (what is blockchain?). But what we can find in the wallet is the public address (public key) and the private key. The form of both keys mainly consists of randomly chosen numbers and letters.

We can imagine the public being the number of our bank account and the private key similar to the password for internet banking or the credit card PIN code. It is basically a code that provides you with access to your funds. Only those who know the number of your bank account can send you funds, and the same logic also applies here – only those who know your public key – wallet address – can send you cryptocurrencies.

  • Public Key: The address of your cryptocurrency wallet.

Looks like this: 1FpPWeadB8iioc5oH5sPAkcai2paoxZke5

  • Private Key: Code to unlock your wallet and sign transactions with.

Looks like this: 0C28FCA386C7A227600B2AISODOS2211EC86D3BF1FBE471BE89827E19D72AA1D

However, anyone who knows the private key, including you, can use the funds in your wallet. Therefore, you should be very careful.

Asymmetric cryptography

So, this was an illustrative example from a well-known world, but let’s take a deeper look at how it all works. Both private and public keys form a part of asymmetric cryptography, which unlike symmetric cryptography uses two different keys.

Symmetric cryptography uses a single key for encryption and decryption, and therefore both sides must know it. However, it only takes one person to get hold of the key to disrupt the entire system.

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In asymmetric encryption, one key (public) is used to encrypt the message (in this case, the cryptocurrency transaction), while the second key (private) is designed to decrypt (unlock the wallet). Obviously, the one who does the encrypting does not have to share the same secret with the decrypting recipient – the same code. Only one of them knows the private key.

Video: Asymmetric encryption explained

The role of security in using private and public keys

It is evident that in order to make all asymmetric encryption meaningful, the private key must be safely stored somewhere where others cannot reach it. On the other hand, we can show the public key to whomever we want to.

Several types of wallets can be used to protect the private key, each offering a different degree of protection. We have already discussed in detail the function of cryptocurrency wallets (how and why keep your crypto secured), but in the following article, we shall summarize the essentials.

In addition to the good old offline paper wallets, usually requiring written letters, the most secure way of holding the private key safe are hardware wallets. When using these wallets, the key is ‘outside’ your computer, which can be an easy target for hackers. Viruses that monitor your keyboard activity are a common way to access the private key. All you have to do is tap the key onto the keyboard and the hacker gets to the key immediately. The basic rule is not to enter the key at all and definitely not send it via e-mail or messenger.

Video: Public and private keys explained in 4 minutes

Using the private key to restore the crypto wallet

Your cryptocurrencies are not necessarily bound to one particular wallet. In order to be able to access your funds, you only need to know your private key. If you make a backup of your wallet, you will receive a second password for your private key, called “seed.” This password contains 12 or 24 random English words.

It is important to write this seed down on a piece of paper (you may want to make multiple copies), so in the case, you lose your wallet, you can easily restore it on other devices such as Mycelium or BRD (Bread wallet) mobile wallets.

Conclusion

In summary, a private key is a code that should be stored in a secure (offline) location and only you should know it.

The public key, on the other hand, is your address to which you can have cryptocurrencies sent. If you follow the basic safety rules, you have nothing to worry, although there are some voices saying that a quantum computer could break asymmetric cryptography. However, nobody in the world has been able to build one yet, and someone will certainly come up with a better encryption method and more complicated keys before anyone succeeds in building one.

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More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

What Are Public Keys and Private Keys?

Beginner Oct 23, 2020

Key takeaways
– The goal of public and private keys is to prove that a spent transaction was indeed signed by the owner of the funds, and was not forged.
– When you own cryptocurrencies, what you really own is a “private key.”
– Your “private key” unlocks the right for its owner to spend the associated cryptocurrencies. As it provides access to your cryptocurrencies, it should remain private.
– You can have one or multiple public keys associated to every private key
– It’s possible to recover the public key if you own the private key. However it’s impossible to find the private key using only the public key.

Public and private keys are an integral component of cryptocurrencies built on blockchain networks that are part of a larger field of cryptography known as Public Key Cryptography (PKC) or Asymmetric Encryption.

The goal of PKC is to trivially transition from one state to another while making reversing the process nearly impossible, and in the process, proving you have a secret without exposing that secret. The product is subsequently a one-way mathematical function, which makes it ideal for validating the authenticity of something (i.e., a transaction) because it cannot be forged. PKC relies on a two-key model, the public and private key, often represented by a padlock (public key) and the actual key to access the padlock (the private key).

Public Key Cryptography (PKC)

PKC is built on the mathematical primitive of “Trapdoor Functions,” which is a math problem easy to compute in one direction and nearly impossible to reverse.

Solving this problem will take computers enormous amounts of time (i.e., thousands of years) to compute the correct answer. In the context of PKC, such mathematical tricks like Prime Factorization are the trapdoor functions that make reverse-engineering (i.e., forging) cryptographic signatures impossible because it requires the computer to solve a virtually unsolvable math problem.

The concept of public and private keys

The general purpose of PKC is to enable secure, private communication using digital signatures in a public channel where there can be potentially malicious eavesdroppers. In the context of cryptocurrencies, the goal is to prove that a spent transaction was indeed signed by the owner of the funds, and was not forged, all occurring over a public blockchain network between peers.

When you own cryptocurrencies, what you really own is a “private key.” Your “private key” unlocks the right for its owner to spend the associated cryptocurrencies. As it provides access to your cryptocurrencies, it should – as the name suggests – remain private.

In addition to a private key, there is also a public key and there is a cryptographic link between the public key and the private key. It’s possible to recover the public key if you own the private key. However it’s impossible to find the private key using only the public key.

Public and private keys are subsequently analogous to an email address and password, respectively.

Alice can theoretically create billions of public keys (addresses) from her private key, which she only has one of and functions as her private password that only she knows — her secret. Once Alice creates a public key address, that address is publicly available to all users in the network as an address where they can send cryptocurrencies like Bitcoin. Only Alice can access the cryptocurrencies sent to that address since she has the corresponding key to the publicly available address.

How a transaction works

Alice’s private key is her digital signature, which she can use to prove that she is the person who spent a transaction or sent a message.

For example, if Alice wants to send Bob a message through a public channel that Charlie is listening to, she can encrypt the message with her private key and sends it to Bob. Alice also produces a special value, called a hash output, with her message that is sent to Bob using his public key. Using the hash output, the message, and his private key, Bob can decrypt and read the message.

Charlie is not capable of reading the message because he only has Alice’s public key and his own private/public key pair. This is the brilliance of trapdoor functions in action. Charlie cannot reverse-engineer the message or private key of Alice because it is built using a trapdoor function.

In Bitcoin, transactions are a series of users sending and receiving bitcoins to each others’ public addresses as inputs and outputs in Bitcoin’s UTXO transaction model. Alice can publish her public key on the web, and people can send bitcoins to that address knowing that Alice is the owner of the private key to those funds.

More generally, nodes (people running the Bitcoin software) in Bitcoin automatically check and validate transactions in the network to make sure none of them were forged using basic consensus rules and cryptographic proofs that the public/private key pairs are valid (Proof of work) . As a result, it is nearly impossible to forge transactions in cryptocurrencies like Bitcoin that use PKC since they are protected by the assumptions of mathematical proofs.

Cryptocurrency Public and Private Keys

The term cryptocurrency is used frequently, but have you taken the time to stop and think what it actually means. The second half of the word is simple currency it’s a type of money, but what does crypto mean and why is it useful? Cryptography can be a complicated subject but today we break it down and provide a simple explanation of why we need cryptography for cryptocurrencies and more specifically how public and private keys work.

Public / Private Keys and the Internet

Cryptography is something that we use in our day-to-day life without even realising it, it is one of the foundations of the internet that allows us to trade safely online and for e-commerce to flourish. Take a look at the address bar on this page right now, you should notice two things the address starts https and there is a little padlock symbol. The https and padlock at the start of an address are telling us that the connection to a website is secure, this is achieved through public key cryptography which encrypts all the data going to and from yourself to the website. This encryption or scrambling of data is essential for trade on the internet otherwise thieves could capture payment information as it was entered into a website.

Bitcoin Digital signing with Private Keys

So cryptography is all about encryption? That’s one of its uses but not the most useful aspect for cryptocurrencies. Cryptography in Bitcoin and other cryptocurrencies is all about being able to digitally verify our identity and sign transactions. Using cryptography to verify our identity with a Bitcoin transaction is analogous to using handwritten signatures and pin codes in today’s banking systems, we are proving our identity to unlock our funds and authorise the spend.

Public / Private Keys Cryptocurrencies

Let’s look at how public / private key cryptography works, public and private keys exist as pairs or key pairs. They’re called pairs because the two sets of keys are related to each other. It starts with the private key which is just a number picked at random. From this number a mathematical algorithm such as elliptic curve manipulation is used to generate a corresponding public key. What’s unique about these mathematical algorithms used is that it is a one-way process, so you are able to generate the public key from the private key but you are not able to generate or guess the private key from the public key.

The below diagram shows a public private key pair and demonstrates the generation process for the public key. Take note of the key points:

  • The private key and public key are related
  • The public key is generated from the private key
  • The generation process is one way. It is mathematically un-feasible to guess the private key from the public key .

In summary this is useful for cryptocurrencies because we are able to sign or verify transactions with a private key which no one can guess. Let’s look at Bitcoin to see how this all hangs together and how we are using public / private key cryptography without even thinking about it when we make a Bitcoin transaction.

Putting it all together

  • All transactions on the Bitcoin network are recorded on the blockchain
  • Transactions are sent and received to public addresses
  • Public addresses are related to the public key. They are a hash of the public key
  • To release or authorise a Bitcoin transaction you need to provide the private key to unlock the funds sitting on the blockchain at the designated address
  • It is safe to share public addresses since it is mathematically un-feasible to guess the private key from this

Relating this to traditional banking

If you are still scratching you head over all of this lets relate this to a practical example in today’s banking.

  • Today your funds are held by a bank who record how much you have spent/ received and record your balance. In cryptocurrency your transactions and balances are recorded on the blockchain without a central authority
  • To access your bank account funds you use your pin. With cryptocurrencies you use your private key. You can think of your private key as being like your bank pin
  • To have funds sent to your bank account you use your account number. To receive crypto you provide your public address (a hash of your public key). You can think of your public key as being like your bank account number.

Wallets and Prublic / Private Keys

It is through wallets that we interact with the blockchain and make transactions to send or receive Bitcoin and other cryptocurrencies. Wallets store your private keys and create public keys which in turn relate to your public address for receiving funds.

If you are new to crypto take a look at our introduction to wallets and review of the different types of wallet.

Wallet Safety

Bitcoin and other cryptocurrencies are very liberating since all you need to release and spend your funds is the private key. There can be no control over your funds or denial of access by a third party, you quite literally have the key to the safe. But with great power comes great responsibility if a private key is lost there is no way or no-one to turn to, to recover it, your funds will be locked into the blockchain. Ensure that you have read our wallet safety guide

Cryptography is also used within cryptocurrencies in the mining process, but that’s a topic for another day.

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