Private key
A private key can be thought of as a password. It is typically a long string of letters and numbers that enables you to access your cryptocurrency funds through your digital wallet.
When you first set up your digital cryptocurrency wallet and buy crypto, you will receive two keys.
Public Key: A public key is like your email address. Everyone can see it and you can share it with anyone.
Private key: A private key is like your password, used to access your funds on the blockchain. You should not share this key with anyone.
Why do we use private keys?
Public and private keys work together to make cryptocurrency transactions safe and secure.
- All cryptocurrency transaction information is stored in blocks of data on a ledger called the blockchain. This ledger is decentralised. This means there is no central authority or middleman like a bank. The blockchain is stored on a vast network of nodes or computers situated around the world. Anyone with a computer and an internet connection can see the public keys and the transaction data stored on the blockchain. However, nobody can see the private keys, nor who holds them, ensuring anonymity.
- Using complex cryptography, your public key is actually generated from your private key. This makes them a matched pair. When making a transaction using your public key, you need your private key to verify that it is really you who is using the key.
- Although everyone can see the transaction taking place, no one can see who is making it. You do not need to provide your name of address like you do at a bank.
How do you keep your private key safe?
Just like your email password, it is extremely important to keep your private key safe. The most popular ways to keep private keys safe are:
- Hot Wallets (online): Most people choose to store their private keys online with a digital wallet provider. These are known as “hot wallets“. There are many such providers, but you should consider one with a long track record of security and with good features. Another option is an online exchange. The two largest exchanges are Binance and Coinbase. This makes it easy to access and use your crypto-assets. Most experts, however, believe cold storage is far safer for long term keeping of crypto assets.
Note: Exchanges don’t typically allow you to see your private keys. That is why they are sometimes called custodial wallets. You do not have full control over your assets with a custodial wallet.
- Cold Wallets (offline): Cold storage options range from a computer that is not connected to the internet to a piece of paper to even memorising your private keys. However, the most popular form of cold storage is using a cold wallet. These are sometimes referred to as hardware wallets. They look like a small USB stick that can be plugged into your computer. They can be expensive, but provide safe long term storage options for crypto assets that are not used on a day to day basis. And since there is no connection to the internet, they cannot be hacked.
