If you’re new to cryptocurrency, you may be wondering what exactly a private key is and why it’s important to your money. Here’s everything you need to know about private keys, from what they are to how they work and why keeping them safe is critical. Keep reading to learn more about how cryptocurrency works, whether you want to invest in digital coins or use them as payment options in your business.
Understanding Private Keys
Unlike public keys, private keys are more like passwords. They are strings of letters and numbers that identify you as an owner of cryptocurrency. Importantly, they also allow you to sign off on transactions before they can be made. While your private key grants you access to your funds, it must also be kept secret at all times—otherwise anyone who gains access will have full control over them. In other words, don’t lose your password!
What is a Digital Wallet?
A digital wallet isn’t as scary as it sounds. In fact, it’s not even tangible! It’s simply an online storage unit for all of your cryptocurrency information. Digital wallets allow you to store and send cryptocurrency (mostly referred to as coins in cryptocurrency vernacular) like Bitcoin, Ethereum, Ripple and Litecoin—just about any coin that exists today.
Why do cryptocurrencies need private keys?
A private key allows you to spend money stored in an address. Without a private key, you cannot prove ownership of an address and send funds. Your private key acts as an access control that lets you spend your cryptocurrency but also prevents others from accessing your account and taking your money. Every wallet contains at least one private key but often has multiple so you can recover funds in case something goes wrong or if you need backups.
How can you protect your private key from being stolen?
There are several precautions that you can take in order to protect your private key from being stolen. If you have physical possession of your hardware wallet, you can use tamper-evident tape on it, so if someone else has entered in their password incorrectly and accessed your private key, you will know. Another option is using extra layers of security like a secondary passphrase or two-factor authentication.
Private Key vs Public Key
The public key is used to verify digital signatures. The private key is what allows you access to your funds on blockchain addresses that use cryptography. Public keys are in essence an address that can be seen by everyone, and it’s what verifies your ownership of cryptocurrency stored at that address. They can also be thought of as an account number. The private key, however, gives you control over your cryptocurrency and can be used for signing transactions. With cryptocurrencies such as Bitcoin, users don’t need a third party (such as PayPal or Venmo) to send money from one individual to another.