Before an individual can commence any type of crypto trading or transactions, such as transferring Bitcoin to purchase items, the buyer can send money through a particular type of key. The seller can also receive the money using the address given by a specific key. And the place where these keys are stored is the crypto wallet.
2 types of crypto wallet keys exist. They include the private and public cryptocurrency wallet keys. This allows for the blissful trading of cryptocurrencies for the purpose of making a profit. More information about them will be provided subsequently in this article, read on!
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What is Public Key Cryptography?
Cryptocurrency mostly deals with trading and each platform provides varying conditions to users. The trading security protocol utilized during cryptocurrency transactions to ensure the legitimacy of data sent and received is achieved via the Public Key Cryptography (PKC.) It’s a system of cryptography that employs sophisticated algorithms to encrypt data between 2 pairs of keys — public and private. Also called asymmetric cryptography.
Through this system, an individual can generate 2 sets of keys. The public one is shared with whoever they choose while the private one is kept secret. Pursuant to this, the individual who has access to another person’s public key can transfer currencies to them. And the receiver can verify the origin of the money using the private key at their disposal.
In other words, the public key is capable of sending encrypted data while the private key is capable of decoding such data, verifying its source (to ensure legitimacy,) initiating. And signing online transactions, thus creating an efficient cryptocurrency trading pattern via the transmission of signals.
The basic work of crypto wallets
Cryptocurrency wallets are invented to serve the purpose of storing the 2 categories of crypto keys. Cryptocurrencies owned by a person don’t reside in the wallet. Rather, the wallet merely serves as a house to the keys that facilitate the sending and receiving of cryptocurrencies.
Nonetheless, coupled with this function, the wallet further serves to encrypt data and append signatures on cryptocurrency trade transactions. Also, the wallet is responsible for presenting users with their crypto account balance.
Cryptocurrencies are cumulated and maintained in a decentralized way on what’s known as “the blockchain” and made available to the general public.
Why are keys important?
The importance of crypto keys is rooted in their ability to facilitate the sending, receiving, and managing of cryptocurrencies from different sources. They further help in securing users’ confidential information by blocking unauthorized access to owners’ funds. And making it very easy for them to identify fraudulent transactions.
Do you need both keys?
Certainly, yes! Both keys perform different but complementary functions. They work independently but cooperatively to ensure a smooth cryptocurrency experience as a trader or user. Their separate functions will be explained below.
What is a private key?
A private key is a form of cryptographic function that provides all cryptocurrency users with access to their very own funds. When individuals access their crypto funds and make transactions, the crypto wallet will use their private key to sign the transaction. The aim of this is to make it obvious to the receiver the sender indeed has the legitimate right to transfer funds using the address in question.
The private key is an efficient mechanism that helps in preventing undue access and detecting fraudulent activities on a person’s address. It’s made up of alphanumeric symbols and must be protected at all costs.
How is private key formed?
The moment an individual initiates any cryptocurrency transaction, they’re presented with a public address and a private key. For better illustration, the public address is similar to a bulletproof storeroom. This is where all cryptocurrency sent to a person during the course of the transaction is deposited.
The private key on the other hand is synonymous with the unique personal identification (a passcode for instance) required to unlock the storeroom. Without it, the contents therein will be unable to be retrieved. Hence, trade activities and all other transactions involving cryptocurrency transfer lead to the generation of public addresses and subsequently, private keys.
Who has access to the private key?
For the purpose of ensuring confidentiality and security, a private key, just as the name implies, is made available to only users who initiate any transaction. However, there exist 2 categories of accessibility — custodial and non-custodial.
In relation to the custodial category, a user can decide to extend the accessibility of their funds to a third party. This makes it possible for someone else to retrieve funds from their address. On the other hand, the non-custodial category limits address accessibility to just the user in question. It’s up to you to decide which suits your interest best.
When do you use a private key?
A private key is to be used only when a person desires to gain entry to their wallet for the purpose of spending, transferring, or making withdrawals of cryptocurrencies in cash. The key is also used to sign crypto coin transactions and other related trading activities.
How private key works?
The private crypto key functions by serving as code to be utilized in decrypting and verifying any data received on the public address. Take this illustration as an example. An individual initiates a transaction, they generate a private key and a public address. A transfer is made to their address.
Now, before the amount transferred is able to reflect on their wallet balance, their private key will be used to confirm the authenticity of the payment. After which the money will reflect in their account and the recipient will be able to access it.
What is a public key?
The public key is yet another cryptographic function that makes possible the transfer of cryptocurrencies into users’ public addresses from outside sources.
This key comprises algorithms made up of both alphabets and numerals. It’s further used to authenticate the digital signature to ascertain ownership of the private key.
How is public key formed?
Whenever a crypto transaction commences, a private key is formed. It’s from this private key a public one is generated. However, the chain reaction doesn’t stop here. A public key contains long alphanumeric characters which are then compressed to form the public address. It’s this public address the concerned individual sends money to. And the money is subsequently received by the owner of the public key/address.
Who has access to the public key?
The public key can be made accessible to whoever the owner wishes. All things being equal, the key can be made available to the general public.
When do you use a public key?
A public key can be utilized when a person intends to facilitate the payment of money into their very own address. In other words, a public key is what enables others to transfer currencies to the address derived from it. Wondering how this is possible?
How public key works?
For better understanding, an illustration will be given. An online vendor seeks to include cryptocurrency as part of the payment options made available to customers. He/she will be required to put the code to their public key on the internet for interested customers to pay through. Customers will then pay to the address generated from the public key.
Afterwards, the vendor can then use the public address of the sender to verify the authenticity of the coins received. This enables the trading of a digital coin or currency more safely.
How are keys different?
A private key is used to access public addresses in order to send, transfer, or withdraw money. On the other hand, public keys function majorly as a mechanism to allow money transfer to a person’s address. While public keys are generated from private keys, it’s grossly impossible for a person to generate private keys from their public keys.
In the event of losing a public key, another one can be generated from the private key. However, once a person loses their private key, all cryptocurrencies available at their address will forever be beyond reach. This goes a long way in portraying the importance of keeping your private key secured.
While private keys are to be kept confidential, public keys can be made visible to all and sundry.
A step-by-step procedure for using your private and public keys
When you lose your device containing details to your wallet, your private and public keys may become inaccessible to you forever. To counter this pandemic occurrence, it’s mandatory that you backup your wallet details.
In the event of switching to a new device, backup also helps in gaining access to wallet details, provided the old device is unavailable. If the old device is however available, it becomes possible to import your keys directly to the new one. Cryptocurrency transactions like trading necessitate many tips, one of which is to ensure that your wallet is accessed only on trusted devices. This is to avoid compromise of data.
The following information provides an explanation of how to use crypto keys in terms of importing them from the wallet, for transaction purposes. Make sure to do this in a secured environment.
- On the previous device where the wallet is located, go to settings, click wallet-to-export, more options, export wallet, QR code Tab. A QR code will come up.
- Open the destination device and use your camera or any other safe digital scanning tool to scan the code.
- Click import and follow other instructions as necessary.
After this, you can now make use of your private keys and request for the generation of new public keys, if you so wish.
Possible issues with crypto keys
The use of crypto keys, although has many benefits as aforementioned, brings with it certain challenges. Take a look at some of these issues and how to address them:
How do you keep your keys safe?
Since the cryptocurrency realm is a decentralized entity, there’s absolutely no means of gaining entry to your public address if you lose your private key. The public keys are meant to be seen by the general public anyway, so there’s no point in securing them. This isn’t the same for private keys. To bridge the safety margin involved in the trading of cryptocurrency, the following points should be taken into consideration:
It was stated earlier a wallet can be of 2 types — custodial and non-custodial. While the custodial allows 3rd parties access to your wallet and by extension your keys, non-custodial restricts access solely to you. This automatically raises the level of their security by banishing other people from retrieving data from your account. Hence, you should opt for the non-custodial category.
Trusted devices only
It’s pertinent to ensure you open your account and import wallet details to a device that’s yours. If you need to access them on other devices, find out if the device doesn’t contain bugs and other compromising inventions that could steal data from you and alter your trade in cryptocurrencies negatively.
The best means to store your keys for future reference, whilst still ensuring security, is through offline storage. You could as well pen down the key codes on a piece of paper and keep them in a confidential place. If you have tons of money in your crypto wallet, then penning down your private key and storing it in a bank, as a document, is perhaps the best way to go about securing your cryptocurrency keys from market place hackers.
What do you do when you lose your keys?
When you misplace your public key, you can always generate a new one from the private key. The problem emerges when the key lost is the private one. This phenomenal occurrence can lock a person out of their address forever.
When such a situation occurs, the primal thing to do is go to your backup and import your wallet details which will also contain details to your private key. In case you don’t have a backup, go look for your non-digital copy of the private codes (which must’ve been hitherto penned down or printed.)
If you’re operating a custodial type of wallet, you could request the private keys from the 3rd party who has access to your wallet. Otherwise, there’s no other way for you to access your wallet. You have to create a new wallet over again and stand the risk of losing your previously acquired coins.
Can problems be directly connected with the wallet of your choice?
There are different typologies of crypto wallets, and they can be grouped into 2 forms — Hot and Cold wallets. Hot wallets are those that have a connection to the internet one way or the other. It’s the most common form. Cold wallets, on the other hand, have no connection to the internet. They’re stored offline.
A person who chooses to embrace the hot wallet type stands a greater risk of having their information compromised than those who utilize the cold wallet. The cold wallet isn’t connected to the internet, thus making it less susceptible to hacking and other forms of illegal virtual penetrations.
Can you recover the keys?
Your public key can be recovered via the private one. The private one can also be recovered via backup or other means of storage as highlighted above. However, while it’s possible to use the private key to recover the public one, the vice-versa is impossible.
What can happen when other people know your private key?
It can lead them to penetrate your public address and spend, withdraw, and/or transfer all of your coins.
In which situations you don’t have to accept the key and the responsibility for it?
When your private key gets compromised. And you’re locked out of your account, you’re no longer held accountable for whatever transaction is done on your public address.
When you can’t control your private key?
The moment you share your private key with a 3rd party, it becomes impossible for you to have absolute control over it. And as such, its security becomes at stake.
What you must never do with your keys?
To ensure legitimate transactions, it’s highly recommended not to share your public keys with suspicious crypto users. It’s equally important not to pen down your private keys and leave them carelessly for anyone to see. Doing this allows your crypto coin or coins to be accessible by anyone on the crypto market.
What’s the best way to store your keys?
Since online mediums of storage pose great risks to keys confidentiality, another appropriate option is to store them on offline mediums called “cold wallets.” This system is great for long-term storage and you can rest assured that your keys and, by extension, your currencies will be kept safe.
How to ensure the keys’ safety?
By using offline mediums of storage, creating a strong password for your wallet, accessing your wallet through trusted devices, backing up, using a non-custodial wallet, and many more measures as it occurs, the security of your keys is assured.
Can someone derive your keys from your wallet’s address?
In no way can your private key be detected from your public address. Furthermore, although the public address is generated from the public key, the reverse isn’t possible. This is so because the public address is a short and hashed version of the public key.
What’s a recovery phrase?
A recovery phrase is a 12-word backup phrase that provides immediate access to all addresses and private keys that are generated from a particular wallet. However, it’s important to state this feature does include the recovery of addresses. And keys that are imported into the wallet in question. Coverage is provided only for addresses and keys originally formed from the wallet through the initiation of transactions.
When do you use it?
The recovery phrase is to be utilized when a person loses their private keys and intends to spend, transfer, or withdraw their coins. It can also be used in a situation where a new wallet is created and the individual decides to transfer all of their funds and keys to the new account.
How it can help you?
This backup phrase functions to prevent the total loss of keys and funds by a crypto trader. It creates a new wallet, an exact replacement of the old one, containing the details of all transactions that have taken place, including the private and public keys involved.