The public and private keys of the crypto world
For all newbies in the crypto industry, it is important to know what public keys and private keys are and what their functions are. Here is a short guide.
Public and Private Keys in the Crypto World: What Are They?
When entering the world of cryptocurrency, the first thing to do is set up a wallet. It is at this stage that you start handle public keys and private keys. But what are they?
The public key is an encrypted code paired with the private key used for receive cryptocurrency transactions. While anyone can send transactions to the public key, you need the private key to “unlock” them and prove that you are the owner of the cryptocurrency received in the transaction.
The public key that can receive transactions is usually a wallet address, and is a 42-character string specified by the receiver to receive crypto. The wallet address is simply a shortened form of the public key and acts as the IBAN for a given crypto account.
Generally, one can freely share their public key without worry. Unlike, the private key is reserved for the owner of the wallet and must be kept secret.
Actual, the private key in the crypto world works as a password to access a cryptocurrency wallet. If this password is accidentally lost or stolen one day, anyone who has it can access the wallet and do whatever they want with the crypto funds they find.
Specifically, private keys are numeric codes which can take different forms, such as 256-character binary code, 64-digit hexadecimal code, QR code, and even a mnemonic phrase.
Public and private keys in different crypto wallets
Speaking of private keys, it is important to learn about the functionality of the crypto wallet you have decided to use to hold your cryptocurrencies.
And indeed, many crypto wallet providers encrypt the private key in a way that is easier to record and remember.
Some wallets use one “seeding”, also known as a “secret recovery phrase,” to unlock the wallet. If you choose MetaMaskits non-custodial cryptocurrency wallet, a series of random words will be assigned to the user and used to unlock the funds. The private key is hidden in the software behind this easy-to-use string of words.
Alternatively if you choose a wallet from one centralized platform such as Binance and Coinbase, the company will hold the private key on behalf of the user. In this sense, the wallet provider controls the funds on behalf of the user.
Public and private keys and digital signature of crypto transactions
These public and private keys are primarily used to sign crypto transactions. This digital signature is used to verify the authenticity of the transaction on the relevant blockchain.
Here are the steps involved in a transaction on Blockchain:
- A transaction is encrypted with a public key. The transaction can only be decrypted with the provided private key;
- The transaction is then signed with the private key, which shows that the transaction has not been changed. The digital signature is generated by combining the private key with the data sent in the transaction;
- The transaction can be verified as authentic using the provided public key.
The user digitally signs a transaction to prove that he or she is the owner of the funds. Nodes check and authenticate transactions automatically. Any transaction that is not authenticated is rejected by the network. A transaction authenticated and mined on the blockchain is irreversible.
The story of Stefan Thomas and his IronKey
Public and private keys are a fundamental part of the crypto world. The story of Stefan Thomas and his IronKey is proof of this.
Thomas is a computer developer who risk losing 220 million in Bitcoin because he lost the password to his IronKey encrypted storage device, where he stored the private keys of the wallet.
Basically, the developer apparently no longer knows how to access his wallets precisely because his IronKey with everything stored in it keeps things secure. Actually safe even from him, since he no longer remembers his password.
Ironically, it is also the case that IronKey only allows the user to enter a password 10 times, after which it becomes inaccessible. When the story was shared, Thomas had already tried to log in 8 times and got the wrong password.
This history suggests that using IronKey is also not a suitable storage mode for private keys. Rather, the idea is to keep the seed phrase or private key stored on paper sheets, easily retrieved by at least its master.
