Decoding the basics of cryptocurrencies - uses of public keys, private keys, and wallet address.
Cryptocurrencies or digital assets are recognized and secured in a slightly different manner than traditional financial instruments. Satoshi Nakamoto implemented public key cryptography to tighten the security of his invention - ‘Bitcoin - a peer-to-peer electronic cash system’ Public-key cryptography uses public and private keys to encrypt and decrypt data or transactions to boost security. The method plays an important role in beefing up safety on the Bitcoin network.
Let’s find out more about the three aspects of digital assets or cryptocurrencies.
Define public key cryptography
Public key cryptography is also referred to as asymmetrical cryptography. This is a method for encrypting or decrypting data with a pair of keys to prevent unauthorized access. The public key encrypts the data or message and protects it across the channel of sending the message. A recipient then accesses the message by decrypting it using a private key. Only the recipient can possess the private key.
Let’s define the public key and the private key.
The main purpose of a public key is to disseminate information in an encrypted format. The public key is a cryptographic code that protects any piece of data, be it a piece of information, token or digital coin, from being accessed by unauthorized persons between the sender and the channel of sending. Usually, the cryptographic code is a long string of characters consisting of both alphabets and numerals.
Here is an example of a public key:
3948 0261 00C9 18FA CF8D EB2D EFD5 FD37 89B9 E069 EA97 FC20 5E35 F577 EE31 C4FB C6E4 4811 7D86 BC8F BAFA 362F 922B F01B 2F40 C744 2654 C0DD 2881 D673 CA2B 4003 C266 E2CD CB02 0301 0001
Once a message is encrypted using the public key, there needs to be a way to access the message by the intended recipient. A private key ensures only the intended audience or recipient will access the information. Hence, a private key is used to decrypt an already encrypted message or data. Furthermore, these keys associate one’s given digital wallet in digital transactions and should be kept safely. In case one loses the private key, there are high chances of losing access to their cryptocurrency wallets or access to encrypted data. For cryptocurrencies, there is no chance of spending your funds once you have lost the key. To ensure cybercriminals cannot crack private keys, they are also expressed as an alphanumeric cryptographic code.
Here is an example of a private key:
How to Protect your Private Keys
Below are a few helpful tips on how to safely store your digital wallet private keys:
Cold storage or offline storage - It is risky to leave your private keys in online places. This puts them at risk from online cybercriminals, malware, and phishing attacks. You can use types of cold storage facilities to store your private keys offline; these include paper and hardware wallets.
Avoid sharing private keys - Giving someone access to your private keys is like giving them access to your digital wallet. They can access the wallet and spend any funds on it. Private keys are more like passwords and should never be shared.
Don’t place all your eggs in one basket - Split your digital assets across different wallets to scatter the risk in case you lost one wallet. It is advisable to store most of your funds in a hardware wallet along with storing the crypto that you need more often in a desktop or exchange wallet.
Strong passwords - A strong password is a combination of special characters, symbols, letters, and random numbers. Also, avoid using the same password across multiple websites.
Update all your software and cold storage wallets - An update will often include updated security protocols to boost your security against any trending and possible attacks. Therefore always ensure your software stack and wallets are up to date.
Two-factor authentication - Two-factor authentication provides an additional protective layer when login into your accounts. An effective 2fa mechanism will involve your email and your mobile number.
Wallet Backups - Back up your wallet to protect yourself from unforeseen circumstances. If you lose your hardware wallet or device, always have some other backup from where you can retrieve your keys.
A wallet address is similar to a phone number; it leadsdirectly to someone’s mobile phone. Digital wallets are assigned wallet addresses as a pipeline to where one should send or receive digital funds. Usually, the public address is a shortened version of wallet addresses. Cryptocurrencies provide either of two wallet addresses, the typical alphanumeric string of characters or a Quick Response code.
Wallet addresses, private and public keys work hand in hand when securing cryptographic data or transactions. For example, when you send Bitcoins to your friend: the transaction is encrypted on the blockchain by a public key. Your friend should have their private key to access the Bitcoins. Hence one has to use the private key to open the Bitcoin wallet to access the funds. Ideally, wallet addresses are created from public keys. Public keys are generated from private keys.
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