What is Private Key in Cryptocurrency?

What is a Private Key?

A private key is a string of randomly generated alphanumeric code that functions like a password. It aids ownership to users and enables them to authorize transactions.

Private keys are a crucial part of cryptocurrencies as they are encrypted and help users protect their crypto assets from unauthorized access.

Private keys are generated during the initialization process of a new wallet. The wallet can be software, online, hardware, or paper. The private key is mathematically linked to public keys and addresses via elliptic curve cryptography.

When the user receives funds at their public address, the sender should digitally sign the transaction with their private keys. The other network participants must verify the signature and confirm the ownership.

Users with private keys can spend their crypto assets by generating signed transaction messages. Hence, the network has authorization from the crypto owner without revealing the private keys.

Private keys must be kept secret. Anyone who knows your private keys can access your funds. Besides, even if the private keys are lost, then your crypto is gone.

How Does a Private Key Work?

Private keys undergo a process known as asymmetric encryption, which generates a pair of cryptographic keys, namely the private key and the public key. Though both of these are mathematically linked, retrieving one key from the other is impossible.

Here is a step-by-step process of how these private keys work.

1. Key Generation

When you create a crypto wallet, a unique pair of keys are also generated alongside. One is the public key, and the other is the private key. You can access both of these keys within your crypto wallet. It can be either in the wallet software’s settings or you can generate them via the wallet platform.

Public keys are like email addresses you can share with others to receive funds. Private keys are like passwords that you should keep confidential. Private keys are used to access funds and authorize transactions.

2. Signing Transactions

You can initiate transactions by mentioning the recipient’s address, the cryptocurrency amount to be sent, and other required information. After entering the required details, you must sign the transaction with your private keys.

The signature proves that you are the authorized person for the funds and validates the transaction. Since the signature is created using the private key, it ensures only you can initiate transactions from that crypto wallet.

3. Validating Transactions

When you sign the transaction, it is broadcast to the crypto network. The nodes then verify the signature using the sender’s public keys. Thus, if the signature is valid and you have sufficient funds, nodes will approve the transaction, preventing any unauthorized access.

4. Securing Private Keys

Private keys must be kept private and not to be shared with anyone. They are not stored on the blockchain but securely stored by the user in a crypto wallet. It can be either software, hardware, or a paper wallet.

Private keys are the ultimate ownership of the crypto assets. If someone gains access to them or you lose them, you will be losing access to your crypto assets permanently.

In short, private keys enable users to control, secure, and transact their crypto assets seamlessly.

How to Protect Your Private Keys?

Private keys are crucial to securing your crypto assets. Let’s discuss some practical yet effective ways to protect your private keys.

1. Use Two-factor authentication (2FA)

Using strong passwords is highly advisable to protect your crypto assets. Additionally, enabling two-factor authentication will add an extra layer of security for your funds. For instance, apart from passwords, receiving an OTP on your phone or email is an example of 2FA.

2. Don’t Store on Digital Devices

Users should not store their private keys on any digital devices like computers, pen drives, smartphones, etc. These devices are more vulnerable to hacking, phishing, malware, and other cyber threats. Offline storage is ideal for storing your crypto assets otherwise, you can encrypt and store it digitally.

3. Keep Multiple Backups

It is highly recommended to keep multiple offline backups of your private keys in various locations. It can be a safe, a paper, a hardware wallet, etc. Thus, even if one copy is lost or damaged, you can still access your crypto funds.

4. Prefer Hardware Wallets

Hardware wallets are physical devices that you can utilize to store your private keys offline. Since they are not connected to the internet, they are less susceptible to cyber-attacks. Hence, it is highly recommended to use hardware wallets to secure your private keys.

5. Stay Away from Scams

Beware of suspicious links and avoid clicking on them. Do not enter your private keys on random websites. Thus, you can prevent possible phishing attacks that commonly happen online to steal private keys.