Public and private keys are the fundamental building blocks of secure transactions in the world of cryptocurrencies. These cryptographic instruments existed long before digital currencies were invented, owing their existence to a theory known as public key cryptography (PKC), also known as asymmetric encryption.
When it comes to cryptocurrencies, a private key serves as the digital signature that permits the asset’s expenditure or transfer, while a public key makes it easier to receive cryptocurrency. In essence, a public key functions similarly to a bank account number and is openly disseminated. On the other hand, a private key — which is similar to a PIN code — is a closely held secret that is used to validate transactions and establish ownership.
This cryptographic pairing, which has its roots in PKC, forms the foundation of blockchain technology and ensures the security and integrity of digital asset transactions. Anyone traversing the crypto landscape must grasp the differences between these keys and their origins in general cryptographic principles.
The history and origins of public and private keys
The field of cryptography, which has been crucial to secure communications from traditional techniques of secret writing to modern digital encryption technologies, introduces the concept of public and private keys. The 1970s saw the first widespread introduction of the contemporary idea of PKC.
Whitfield Diffie and Martin Hellman first presented the concept of public key cryptography in their seminal work “New Directions in Cryptography” in 1976. The Diffie-Hellman key exchange protocol was initially presented in this work, and it made it possible for two parties to safely exchange a secret key over an unprotected channel.
The RSA algorithm was created in 1977 by Ronald Rivest, Adi Shamir and Leonard Adleman (hence, “RSA”) after the publication of Diffie and Hellman’s work. This is still a commonly used algorithm that was the first to be able to be used for both digital signatures and encryption in documents. A public key and a private key are the two keys used by RSA for encryption and decryption, respectively.
Elliptic curve cryptography (ECC) and other asymmetric key methods were created in the wake of these advancements, which brought improvements in efficiency, security or both. Today, public and private keys are used in every cryptocurrency transaction, allowing for secure and decentralized transfers of value.
What is a public key?
In general, a public key is an important component of asymmetric cryptography, which utilizes a pair of keys called a public key and a private key. Data encrypted with the public key can only be decrypted using the private key, and vice versa, because these keys are mathematically related but distinct. As the name implies, the public key is distributed openly and publicly without sacrificing security. It performs several tasks, including data encryption, digital signature verification and safe key exchange facilitation.
Because only the owner of the private key may decrypt communications encrypted with the public key, this approach makes safe communication possible. Furthermore, anyone with access to the public key can validate digital signatures generated using the private key, ensuring the integrity and authenticity of the communication.
A public key is essential to securing cryptocurrency transactions and preserving the blockchain’s integrity. A public and private key pair is generated when a user creates a crypto wallet. To receive cryptocurrency, the public key is converted into a public address that is shared publicly.
Anyone can send funds to this address, but only the private key holder can access and use them. This mechanism ensures that only the legitimate owner of the private key can control the funds, even though transactions are public and verifiable by anyone on the network.
Furthermore, transactions are signed using private keys, demonstrating that the wallet owner has initiated the transaction and has not been tampered with. This mechanism ensures trust and integrity in cryptocurrencies’ decentralized and secure nature without relying on central authorities.
What is a private key?
A private key is also a fundamental component of asymmetric cryptography that allows its owners to decrypt messages intended for them and to create digital signatures. The digital signatures created using a private key can be verified using the public key, confirming the integrity and authenticity of the message. For security purposes, it’s important that the private key is kept confidential because if it is compromised, an unauthorized individual could decrypt sensitive data and assume the identity of the key owner.
In terms of cryptocurrencies, a user generates a pair of keys when they create a wallet: a public key that is converted into a public address and a private key. To ensure that only the legitimate owner has access to and usage of the cryptocurrency linked with the public address, this private key is necessary.
The private key is also used to sign transactions, guaranteeing that they have not been altered and proving that the wallet owner authorized them. By utilizing the matching public key to validate this signature, the transaction’s validity and integrity are guaranteed.
The private key must be kept secure at all times; if it is misplaced or stolen, the owner cannot access their funds. To maintain confidence and security in a decentralized financial system, keeping and safeguarding private keys is therefore essential to utilizing and securing cryptocurrencies.
How are public and private keys related?
Key pairs are created using cryptographic algorithms like the elliptic curve digital signature algorithm (ECDSA). These methods ensure that the keys are safe and nearly impossible to deduce from one another. The entire cryptocurrency system’s security is based on these algorithms’ resilience.
Let’s explore the relationship between public and private keys and their use through the example of Bob and Alice.
Signing transactions with public keys
The steps below are part of the transaction signing step:
Verifying transactions with private keys
This step includes the following key stages:
Public key vs. private key: Key differences
Here are some of the key differences between public and private keys based on their visibility, purpose, encryption, length, ownership and verification.
How to safeguard a crypto wallet’s private keys
Users frequently rely on seed phrases (mnemonics) to protect private keys. A human-readable string of words that encodes the private key is called a seed phrase.
Continuing the above example, when Alice creates a new wallet, she is given a seed phrase, such as “correct battery horse staple,” etc. Alice writes the seed phrase on a piece of paper and keeps it safe. She can regenerate her private key and access her funds using the seed phrase if she ever loses access to it.
If someone else gains access to the seed phrase, they can restore Alice’s private key and control her funds. Therefore, seed phrases must be kept confidential and secure.
The development of hierarchical deterministic (HD) wallets, which generate all of the keys from a single seed phrase, has significantly improved the management and security of cryptocurrency wallets: This implies that Alice only needs one seed phrase to back up all of her addresses and private keys.
Additionally, Bitcoin Improvement Proposal 39 (BIP-39) has standardized the generation and application of seed phrases, enhancing security and interoperability across various wallet providers.
Where is the safest place to store crypto keys?
A hardware wallet is the safest place to store cryptocurrency keys since it protects them from hackers and keeps them offline. Strong security is offered by hardware wallets like Ledger or Trezor, which store private keys on a physical device that needs to be plugged into a computer or phone to authorize transactions. They are, therefore, resistant to viruses and unwanted access. Physical security is essential, though, as losing the hardware wallet and losing or hacking the recovery seed phrase might have fatal consequences.
For example, there have been instances where people have lost significant sums of cryptocurrency due to misplacing their hardware wallet and failing to have a safe backup of their recovery seed phrase. Users should keep their recovery seed phrases in several safe places, like an encrypted digital vault or a safe deposit box, to prevent such losses and ensure they can always access their possessions again.
Cryptocurrency security best practices
Best practices for cryptocurrency security are essential for protecting digital assets from attacks. Firstly, keep yourself informed on emerging security risks and market trends related to cryptocurrencies. Choose platforms and services with strong security protocols and a solid reputation, and exercise caution before choosing one.
Since hardware wallets store private keys offline, they provide increased security when holding large sums of cryptocurrency. To provide additional security, enable two-factor authentication (2FA) on all wallet and exchange accounts.
- Update your software frequently and make use of reliable antivirus software.
- Take precautions against phishing attempts by double-checking URLs and avoiding dubious links.
- Ensure each account has a strong, distinct password and use a password manager to track them safely.
Store backup wallet seed phrases offline and in a safe place. Refrain from disclosing sensitive information and private keys to the public. Diversify your assets over several wallets to reduce risk. To avoid mistakes, double-check addresses when dealing with them. Finally, for increased security, utilize multisignature wallets, which require several transaction-level permissions.
These practices collectively help in protecting against common security vulnerabilities and ensuring the safety of cryptocurrency investments.