Blockchain represents an endless reservoir of data, wherein every address possesses both a public and private key. Security within blockchain relies on cryptographic algorithms, whereby the private key serves as the key to unlock a virtual safe, granting entry to digital assets.
This article will elucidate the functionality of crypto private keys, explore their generation process, and unveil how a basic amalgamation of characters can ensure the safeguarding of users’ assets.
What Is a Cryptocurrency Private Key?
A private key is a set of randomly generated characters that gives you access to assets on the blockchain and is used for signing transactions.
Someone who knows your private key can access all your crypto assets and sign transactions (perform any action on the blockchain).
How the Private Key Is Used in Crypto?
The private key serves to authorize transactions and manage blockchain assets (such as accessing a wallet).
If the device containing your cryptocurrency wallet is lost, it doesn’t imply permanent loss of your funds.
You can restore wallet access with your private key. For instance, you may import a wallet through MetaMask to illustrate this process.
Follow the instructions:
- Click on the account selection box and the “Add account or hardware wallet” button.
- Select “Import account,” insert your private key, and click “Import”.
- Congratulations. All you need to do is add the tokens you had in your wallet. To do this, click “Import tokens.”
Methods of Storing Private Keys
Private keys storage options are diverse. They must be secure and exclusive to you. Options range from bank vaults to digital clouds. Some hide keys in digital images or audio files.
Storage methods vary depending on your security needs:
Custodial wallets rely on third parties like exchanges. They manage your keys, simplifying transactions.
Non-custodial wallets put you in control. You manage your keys but also bear responsibility for their safety.
Cold storage keeps keys offline, like hardware wallets. They’re secure from online threats.
Hot storage is online, including web or exchange wallets. They’re convenient but less secure for large sums.
Brain wallets and paper wallets are secure yet risky. Brain wallets rely on memory, prone to forgetting. Paper wallets risk loss or damage.
Choose wisely based on your security needs and risks.
How Do Crypto Private Keys Work?
A private key is generated first. It’s a unique mix of letters and numbers. Cryptographic functions create a public key from it. You can’t reverse-engineer the private key from the public one.
A private key is used by George to sign a transaction, sending one Bitcoin to Emma.
The signed transaction is verified by validators using George’s public key.
If validated, the transaction is added to a new block in the blockchain, updating balances accordingly. George loses one Bitcoin, Emma gains it, minus fees.
Public Key vs Private Key
Private and public keys are essential for transactions. The private key is confidential, used for decryption, signing transactions, and managing funds.
Losing it is irreversible, but a recovery phrase can help. Public keys are visible to all, used for identification, encryption, and signature verification.
Sharing public keys is safe, but knowing them doesn’t grant wallet access. While public keys can be generated from private keys, the reverse is impossible.
Read more: What are Gold-backed Cryptocurrencies
Crypto Private Key Examples
The private key to the wallet is almost impossible to find — all thanks to sophisticated encryption algorithms. In short, before creating a cryptographic key, an algorithm generates a random set of digits (called entropy). The algorithms encrypt the entropy. The algorithms encrypt the entropy, creating a mnemonic phrase. From this, a seed—a modified version of the mnemonic phrase—is generated. Private key encryption is then generated based on the seed.
The scheme of private key generation looks like this:
Entropy → mnemonic phrase → seed → crypto keys
For example, an Ethereum private key looks like this:
f982cbb837d0dfdda77ff2c160c01f9252667d820581ff95c250ad6cabe4cda3
Cryptography is also used to create a public key based on a private key.
For example, Ethereum’s public key always starts with “0x,” and it looks like this:
0x0083301AcD7dfF66715c432B91553C2F45A08CcC
What Are the Benefits of Private Key?
The main advantage of a private key is that, if properly stored, it is virtually impossible to compromise it. In addition, the private key allows you to confirm the author of the transaction, as it acts as a signature.
It is essential to mention the possibility of importing the key into other wallets. The wallet itself is not bound to your private key; it is just an interface to interact with. This is what importing the same private key into MetaMask and Trust Wallet looks like:
You can also make the import with Seed-phrase — 12-24 English words from a unique dictionary. It is used to back up the key.
Risks and Challenges Associated with Private Keys
Unrecoverability. It is impossible to recover a private key from a public key. People use a variety of ways to find or remember where the private key lies. Some look for their devices through trash cans, while others try to recreate their copy using artificial intelligence. We recommend storing your private keys securely to avoid doing either of them.
Attackers often use social engineering to trick people into revealing their private keys. For example, they may write to you under the guise of wallet technical support and ask you to send your private key. The legends can be different, but the goal is the same — to lure out the private key and take possession of the funds.
Malware and attacks. Network traffic interception attacks (Man-in-the-Middle), malicious browser extensions, online address generators, phishing, fraudulent sites — a short list of ways to steal your private key. There have been cases where people were given hardware wallets with third-party software. When the person enters their private key, it automatically becomes available to the attacker.
How can you minimize the risks?
- Don’t buy wallets from dubious stores at an undervalued price. It’s much safer to order directly from the manufacturers’ official stores;
- Regularly and timely update the software on all your devices and wallets;
- Don’t keep private cryptocurrency keys on your computer;
- Do key rotation from time to time and move your assets from one address to another;
- Don’t use online address generators. Do it only through your wallet interface.
- Never share your private key with anyone.
What Is the Best Way to Store Private Keys?
Custodial storage. A third-party service like an exchange handles user private keys, making it easy and convenient, especially for beginners. No need for experience or high responsibility. If you forget your password, support can help you recover it, and exchanges typically offer a wide range of cryptocurrencies.
Non-custodial storage. Ideal for users seeking independent key management and complete asset control. Typically, preferred by experienced users aware of custodial storage drawbacks. No third-party involvement; users solely manage their keys and assets.
Hotstorage is suitable when you use funds frequently. You should not store many assets on hot wallets, as they are vulnerable to Internet threats. Hot wallets are used on decentralized exchanges, smart contracts, and blockchain applications.
Coldstorage is perfect for buying crypto and keeping it for a few years. This method is usually used to store large amounts of cryptocurrencies. Yes, cold hardware wallets are not as fast and convenient as hot wallets, but they will provide maximum protection for your assets.
Wrapping Up
The public key works with the private key. Encryption techniques such as symmetric, asymmetric, and hashing encode the private key for decrypting information, particularly in cryptocurrency.
Digital signatures help quickly verify sender identity. Private keys from any wallet access assets, highlighting secure storage importance.