The rapid growth and widespread use of cryptocurrencies have continuously increased the need for reliable and secure digital asset handling. We hear about major cryptocurrency hacks every other day. So, to secure assets, we need to understand everything about security keys.
When you first purchase crypto, you get two keys. These are public and private keys. You can send or receive and manage cryptocurrencies with them. To join the crypto industry, you must understand public and private keys. Let’s shed light on each of them.
What Is A Private Key?
A private key is a large, randomly generated string of letters and numbers. It is only for wallet owners. The private key allows the individual to access digital currencies in his wallet. However, it prevents unauthorized access to funds.
Digital currencies like BTC, BNB, and ETH are decentralized. This means no middleman stores your money. Instead, blockchain spreads the assets across a network of computers called nodes. However, anyone can see your crypto activities, such as public keys and transaction data.
Although blockchain transactions are public, they do not reveal your identity. DApps do not demand personal data such as phone numbers, names, and addresses. Instead, they assign you a private key that helps you access and manage your assets. A special algorithm generates a public key from the private key.
Private keys have their pros and cons. Because of its length, it can take years to crack a private key. However, private keys keep your holdings secure. There may be a risk of losing private keys. This means you cannot access your wallet funds if you lose them. Additionally, storing
your private key carelessly could cause it to be compromised, and you could lose your holdings.
A private key can also take several forms:
- 64 digit hexadecimal code
- 256-character long binary code
- QR code
- Mnemonic phrase
How To Store Your Private Keys
Keeping your private keys safe is essential so they are not stolen or lost. There are numerous ways to secure private keys. We divide them into two categories:
Storing Them In A Hot/Online Wallet
This is the cheapest and easiest way to store private keys. Hot wallets store your private keys online. Meanwhile, this makes them easy to use but exposes them to cyber-attacks. When choosing a hot wallet, check if it offers features like two-factor authentication (2FA).
Storing Them In A Cold/Offline Wallet
Another way to store private keys is cold or offline wallets. These wallets are hardware that can be inserted into a computer. As well as they may be pieces of paper that can be printed. Since it is offline, it prevents the digital theft of your private keys. Unfortunately, they are prone to displacement, loss, physical theft, and memory loss.
In general, hot wallets are simple and mostly free. Popular hot wallets include Coinbase Wallet, Trust Wallet, and MetaMask. Meanwhile, cold wallets are more secure as they remain offline but are expensive. Common cold wallets include KeepKey, Ledger, and Trezor.
Why Do Cryptocurrencies Need Private Keys?
A private key allows you to withdraw money stored in an address. You cannot prove ownership of an address and send assets without a private key. Your private key is access control that allows you to spend your crypto and prevents others from stealing your money. Every wallet has at least one private key, but often more. However, it becomes possible to get a refund if something happens.
A Hardware Security Module (HSM) For Big Companies
Most crypto companies and businesses have a lot of digital assets to handle. However, a hardware security module (HSM) can be the best option for storing their keys. It is a special tamper-resistant hardware device. HSM creates, manages, and stores cryptographic keys. They use cryptographic methods to ensure that private keys never leave the device in which they are present.
Use Multi-signature Wallets For Robust Security
Multisig or multi-signature wallets require multiple private keys to enable transactions. These wallets interact with different devices and parties that provide additional security. Multisig wallets protect your digital assets if one private key is compromised. They ask for multiple approvals before any transaction can take place.
What Is A Public Key?
The public key acts as an email address. It allows you to receive crypto. However, any user on the blockchain network can transfer funds to your wallet using your public key. The public key is generated from the private key through complex algorithms such as The Discrete Logarithm Problem. Therefore, it is impossible to reverse the public key to find the private key. In contrast, generating a public key from a private key is simple.
How Do Private And Public Key Work?
As we highlighted above, the private key is the creator of the public key. However, crypto users must have two keys to decrypt and encrypt messages. If you encode information using someone’s public key, there must be a corresponding private key to decode it.
For example, Jack wants to send an encrypted message to Bob. He will use Bob’s public key and encode his message. When the message reaches Bob, he uses his private key to decrypt Jack’s message. Hackers can try to compromise the system and decrypt the message. They will not succeed because they do not have the private key for access. Only Bob can read the message because he has the private key.
Furthermore, if Bob wants to respond, he will repeat the same process.
Difference Between Private Key And Public Key
|S.No||Public Key||Private Key|
|1||Accessible to all blockchain users||Accessible only to the user who generated it|
|2||Impossible to lose because it is in the public domain||Easy to lose if stored carelessly|
|3||Asymmetrical because it uses two keys, one private and one public||Symmetrical because it features only one key|
|4||Not as efficient as the private key||Very efficient|
|5||The receiver and sender do not need to share the same key||The receiver and sender employ the same key|
|6||Ideal for short messages||It is used for large amounts of text|
|7||Provide a level of anonymity in crypto transactions||Necessary to prove ownership|
Public and Private keys are basic components of cryptography. Cryptography is also called cryptology. It is the encryption of communication and data so that only the target people can decrypt and read it. Meanwhile, cryptography is a basic element of blockchain technology.
Blockchain uses cryptography for many purposes, including:
- Protection of user identity – Cryptology in blockchain networks allows people to protect their data and information when performing transactions on the web.
- Ensure safe transactions – It ensures that transactions are made securely. However, crypto transactions become viable, valuable, and secure with cryptology.
- Secure blocks – After verifying the transactions, they are added to the blockchain as blocks. Cryptography protects these blocks and does not allow any party to make changes without permission.
Symmetric and asymmetric are the two major types of cryptographic algorithms. Symmetric key algorithms use only one key to code and decode the message. In contrast, asymmetric cryptography uses two keys. A public key encrypts information. While a private key decodes it.
Private and public keys are the only major components to secure your assets. In crypto, users are given public and private keys to send, receive and manage coins. Combining an individual’s private and public keys creates a digital signature that protects transactions. Public key encryption makes data more secure by adding additional protection. This is because no one knows which private key matches the public key.
If you are a beginner, managing and securing cryptocurrencies can be difficult. As your own bank, you are solely responsible for ensuring the safety of assets. No manager or customer service representative can address your concerns or reverse your transaction. By taking comprehensive security measures, you can reduce the risk of losing or disclosing your private key.