03/10/2022

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What Exactly Is A Private Key in Cryptocurrency

2 min read
What is a private key? | Coinbase

Cryptography uses private keys in the same way as passwords to protect sensitive information. To sign a blockchain transaction and prove ownership of an address, private keys are used in cryptocurrency.

In Bitcoin and Altcoins, private keys are crucial components of security that prevent thieves from accessing user funds.

A Brief Overview of Private Keys

A cryptocurrency is controlled by addresses and a set of digital keys, which represent the ownership and control of virtual tokens. Anyone can send Bitcoins or other tokens by transferring them to any public address.

The user will not be able to withdraw tokens from their address without the unique private key, even if they have deposited them into it.

There are a few different types of private keys. The average, base-ten version of a private key consists of hundreds of digits-too long to be crackable by brute force. Usually, private keys are expressed as strings of alphanumeric characters.

A complex mathematical algorithm is used to generate the public key from the private key. The process is nearly impossible to reverse by generating a private key from a public key. The receiving address is then created by using a similar algorithm. 

Best Way to Store Private Keys

You can store private keys on your computer or mobile phone, on a USB drive, in a hardware wallet, or even on a piece of paper. You should decide how frequently you will use your cryptocurrency when choosing the best storage method. It’s more convenient to store cryptocurrency on a mobile phone or computer that’s password-protected for everyday use.

When storing private keys for long-term use, or for “cold” storage, they should always be kept offline on devices that aren’t connected to the internet. Printers may be vulnerable as well. Cold storage is possible with hardware wallets by signing transactions securely without jeopardizing private keys.

Custodial Wallets: Are They Trustworthy?

Almost like a bank, custodial wallets allow users to store cryptocurrency on third-party servers. Using this method, users can avoid the complexity of storing private keys by relying instead on the technical expertise of the service provider. It comes at a cost, however. Criminals and scammers target custodial wallets often, and authorities can also seize or freeze them. It’s best to determine what type of a Bitcoin wallet best suits your risk tolerance and technological capabilities.

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