What Is a Private Key?
A private key is an alphanumeric code generated by a cryptocurrency wallet. It is used to authorize transactions and prove ownership of a blockchain asset.
A private key is an integral part of cryptocurrency, and its encrypted properties help protect users from thieves and unauthorized access to their funds.
Key Takeaways
- A cryptocurrency private key is basically an access code.
- A cryptocurrency private key is a randomly generated number usually converted to 64-digit hexadecimal format.
- Private keys represent control and ownership of cryptocurrency. If your keys are stolen or lost, your crypto is gone.
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How Private Keys Work
Cryptocurrency is controlled through a set of digital keys and addresses, representing ownership and control of virtual tokens. Anyone can deposit bitcoin or other tokens in any public address. However, the recipient must have the unique private key to access the deposited crypto.
Private keys can take several different forms. Cryptocurrency private keys are randomly generated numbers that can be one of 2256 possibilities. Generally, they are 256 digits long, but for simplicity, private keys are usually expressed in hexadecimal form.
While hashing a public address from a private key is trivial, the reverse is almost impossible. Modern hardware and software are not capable of cracking encrypted keys.
The public key is created from the private key through an encryption algorithm. However, it is nearly impossible to reverse the process by generating a private key from a public one. A similar algorithm is then used to create a receiving address from the public key. Think of the address as a locked mailbox and the private key as the key to the box.
The mail carrier and anyone else can insert letters and small packages through the opening in the mailbox. However, the only person who can retrieve the mailbox's contents is the one with the unique key. Therefore, it is essential to keep the key safe—if it is stolen or lost, the mailbox can be opened by anyone with the key.
Private Keys and Digital Wallets
While hashed private keys are essential to cryptocurrency, users don't need to manually create or remember their key pairs. Instead, cryptocurrency wallets automatically create key pairs and store them. When a transaction is initiated, the wallet software creates a digital signature by processing the transaction with the private key.
The private key is used to authorize a transaction and ensures that it cannot be changed once it's broadcast. If the transaction information is altered, even slightly, the signature will be incorrect because the algorithm generates the same signature from identical information.
If a user loses their private key, they can no longer access the wallet to spend, withdraw, or transfer coins. Therefore, it is imperative to save the private key in a secure location.
Storing Your Private Keys
There are several ways private keys can be stored. They can be written or typed on paper—these are called paper wallets. Some people use software that generates QR codes to print on paper so they can easily be scanned when a transaction needs to be signed.
You can also use devices designed for storing private keys. Many of these connect to your computer or device and transfer your keys for you, removing them from your hot wallet.
Private keys can be stored using a hardware wallet that uses smartcards, USB, or Bluetooth-enabled devices to secure your private keys offline.
There are two types of key storage, each with two types of wallets. Custodial wallets are wallets where someone else, like an exchange, stores your keys for you. Noncustodial wallets are wallets where you store your keys. Both types have cold (has no connection to the internet) and hot (has an internet connection) wallets.
An example of a custodial cold wallet is the storage Coinbase uses for keys. You move your keys from cold storage to your Coinbase hot wallet when you want to use them. A noncustodial cold wallet example is the Ledger Nano X, which you use to connect to a device with the software wallet of your choice, which is a noncustodial hot wallet.
How Can I Get My Private Key?
Your private key is generated by your wallet and is used to create your public key (your wallet address) using encryption. You can view your private key using your wallet.
Is a Private Key a Password?
A cryptocurrency private key is similar to a password because it lets you use the cryptocurrency it is linked to.
What's the Difference Between a Public and Private Key in Crypto?
A private key is a randomly generated number usually presented in 64-digit hexadecimal form. A public key is generated from this number and is used to generate a cryptocurrency address.
The Bottom Line
In cryptocurrency, private keys are codes similar to passwords you use to authorize crypto transactions. These keys are the only way someone can gain access to your crypto, so it's essential to safeguard them using the latest and most reliable storage techniques available. The best way to safeguard your keys is to use noncustodial cold storage, a method that removes your keys from accessible devices and connected wallets.
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