In the cryptocurrency world, a private key is like a secure password that enables access to your crypto funds. Let’s take a closer look at what they are and how to protect them..
What is a Private Key?
When you purchase crypto coins, you’ll be issued a public key and a private key. The public key works in a similar way to an email address and allows you to safely send and receive funds. Public keys are visible to everyone and are used to identify your wallet.
The private key is a unique combination of numbers and letters that unlocks your virtual crypto vault. Private keys are often also referred to as “secret keys.” For obvious security reasons, it is not possible to generate your private key from a public key.
Private keys are typically very long strings of numbers that would be almost impossible for anyone to ever guess. As long as you are the only person with access to your private key, your coins are secure in the vault.
A private key also enables you to digitally sign transaction statements. Put simply, a transaction is just a signed statement on a blockchain that adds coins to a new address. Private keys act as ‘proof’ that you own that blockchain address.
It’s completely safe and necessary to share your public key with others. But, you should never share your private key. If someone gains access to it, they’ll be able to control your wallet and the funds inside.
Most crypto wallets nowadays support seed phrases that leave less room for human error. Seed phrases, also known as recovery phrases, are a collection of words that can be used to access your wallet. They are usually a series of 12-26 random words.
Why are private keys important?
Private keys are one of the cryptographic features that make decentralized, digital financial systems possible. Without them, the crypto space would be much less secure. Cryptocurrencies like Bitcoin and Ethereum are decentralized which means that there is no central authority or bank storing your money. Instead, your coins are stored on a blockchain network. While this means that your funds are protected from central authorities, it also means that there is no third-party protecting your wallet.
Instead, private keys are used to keep your crypto secure.
Furthermore, blockchains are open and all public keys and transaction data are visible to everyone. Private keys, on the other hand, are completely anonymous.
While everything is visible, it’s also pseudonymous as you don’t need to provide personal information like a name or address to use crypto. As there is no personal information or centralised party, there is no way of accessing your private keys if you lose them. This is one of the main differences between private keys and regular passwords, which can be reset through your email address. If you lose your private keys, you lose access to your funds.
How should you store your private keys?
Keeping your private keys safe and secret is of utmost importance. There is a range of different methods to keep them hidden from prying eyes. Cold-storage hardware wallets are the most secure choice. For everyday use, hot wallets are arguably more convenient, although can be hacked and compromised.
Hot Storage wallets
Hot wallets are permanently connected to the internet and are linked to both public and private keys. The wallets can be used to store, receive and send tokens. This option is convenient because hot wallets can be accessed from anywhere, as long as you have an internet connection. However, there is a risk of hacking if your device is compromised.
Cold storage wallets
Others store their private keys offline with cold storage wallets. Cold storage wallets are physical devices that are not connected to the internet. Cold wallets are similar to hard drives except they are purely for the purpose of storing crypto and private keys.
Cold storage wallets are a popular option because they are offline so cannot be hacked and are considerably safer.
What happens if you lose your private keys?
If you lose your private key, it’s gone forever. That means you also lose access to any funds that were associated with the key. Most wallets give users a few attempts to guess their key before encrypting the content and blocking access to the wallet.
Tokens such as Bitcoin do not have a centralized company looking after the wallets. Therefore, there is no way of receiving new keys or accessing your funds without them.
Lose your private keys, and you lose your crypto, forever.
Can you change your private key?
Once a private key has been created, you cannot change it. To change private keys investors would need to create a new wallet account. As long as you keep your private key secure, there should be no need to change it or move your funds to a different account.