What Is A Crypto Private Key?

In the crypto world, private keys serve as passwords – typically a string of letters and numbers – that allow users to access and manage their crypto assets. This secret alphanumeric code verifies your ownership of a cryptocurrency on a blockchain, protects the funds from unauthorized access, and is required to move the funds.

When you first buy a cryptocurrency, you are issued two keys: a public key and a private key. As the name suggests, a public key functions almost like an email address or username, meaning that you can share it with anyone who wants to send or receive funds. Whereas a private key functions more like a password that gives you access to the tokens you own on a blockchain, and is not meant to be disclosed.

Understanding the Importance of Private Keys

Cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) are decentralized, meaning there are no institutions or intermediaries involved in their issuance or distribution. Instead, the tokens are distributed over a blockchain, which is a distributed ledger formed by application-specific computers located across the world, run by individuals known as nodes.

A key feature of blockchains is that they are transparent, and all public key and transaction information is visible and can be publicly audited. Your public key is actually generated by your private key, making them a matching pair. However, it is nearly impossible to use a public key to generate a private key, as existing hardware and software are incapable of cracking blockchains’ encryption technology, which has a one in 2^256 possibility of being right when guessing.

When a transaction is made using your public key, the blockchain verifies its authenticity using your private key. While all activities made on the network are out in the open, it is also anonymous – you don’t have to provide your personal information to make a crypto transfer. For example, anyone with an internet connection can view the Bitcoin network to observe when BTC is bought, sold, or used, but only the person with a private key can make those transactions.

Anyone can deposit crypto into a public address; however, only those who own the private key can access those funds. Private keys can also take different forms. Typically, they are randomly generated numbers that are 256 digits long, but for simplicity, they are expressed in hexadecimal form.

What Is The Relationship Between a Private Key and a Crypto Wallet?

The question in your mind right about now would be: Who issues private keys?.

While private keys are an essential part of cryptocurrencies, users aren’t the ones who create them. Instead, the private-public key pairs are automatically created and stored by wallet applications when you open a new account. When a transaction is initiated, the wallet creates a one-time digital signature by processing the private key, which is authorized by the user.

Private keys authorize transactions, ensuring that a transfer can’t be reversed once broadcast to the blockchain. If the transaction details are updated, then the signature becomes invalid as the algorithm only considers identical information.

In the unfortunate scenario that a crypto user loses their private key, they can no longer access their wallets to spend, withdraw, or transfer the coins. Therefore, it is imperative to save your private key in a secure location.

How To Safeguard Your Private Keys?

Just like your password, it is crucial to keep the private keys to your wallet safe. There are several ways in which you can store your keys, such as writing them down on a sheet of paper, also known as paper wallets, or by generating a QR code that can be scanned to process transactions.

However, there are two major ways in which you can store and track your private keys:

• The simplest method for non-technical crypto users is to use a software-based wallet to store their private keys. These so-called “hot wallets” are always connected to the internet, making them the most viable option for regular crypto transactions.

E.g., Base Wallet, MetaMask, Trust Wallet

• The convenience of hot wallets is also their vulnerability. Scammers often target unsuspecting users by tricking them into disclosing their private keys. This has led to a rise in the adoption of “Cold Wallets,” which are hardware wallets that aren’t connected to the internet. This is mainly recommended if you are someone with plans to hold a crypto asset in the long term.

E.g., Bitkey, Trezor, Ledger, Paper wallet

Final Thoughts

Private keys are alphanumeric codes that are used to authorize cryptocurrency transactions. They are akin to regular passwords and are vital for accessing your digital assets stored on the blockchain.

It is paramount to protect your private keys, as losing them means losing access to your crypto fortunes. The most recommended methods for storing private keys are either on a hot wallet – Coinbase or MetaMask, if you regularly transact in crypto, or on a cold wallet – Trezor or Ledger – if you want them to remain under your supervision and plan to hold them for a long period.

While software-based wallets are the most convenient, they are also highly risky. Whereas hardware or paper wallets prevent unauthorized online access by disconnecting your keys from the internet and accessible devices.