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Private and Public Keys Explained

by Sandip Das from
Private and Public Keys Explained

Read this post titled private and public keys explained to know how crypto transactions are made secure, private, and anonymous using these cryptographic keys. Also, to understand how crypto transactions are executed without an intermediary, you need to know how public and private keys work in sync. The private and public keys fit together to form a cryptographic key pair. The public key can be shared to execute crypto transactions whereas the private key needs to be kept secret. It’s used to decrypt transactions.

Blockchain is probably one of the biggest innovations in the world of finance ever. It promises seamless, global, and instant financial transactions in a secure, private, and peer-to-peer environment. Blockchain removes the requirements of trust in conducting financial activities. So, when you want to send or receive crypto (like, Bitcoin or Ethereum) you don’t need to involve any bank, government agency, or payment processing company. It is done by the decentralized blockchain which is basically a public ledger run by open-source software.

Behind this grand show of blockchains, the technology that plays a crucial role is called cryptography. Public and private keys are two core elements of blockchain’s cryptographic architecture. In this post, we are going to break these difficult concepts to their bare basics. In this beginners’ guide on private and public keys explained, we are going to discuss:

  • What is a cryptographic key
  • What are public and private keys?
  • How public and private key encryption works
  • Asymmetric encryption

Read on to find all the necessary informationabout the above topics and understand the world of crypto transactions better.

1. What is a Cryptographic Key?

A cryptographic key works just like a physical key - to keep things private and secure. We use a physical key to ensure that unwanted people cannot open a door or anything that’s locked. Only the person having a copy of the key can open the lock. Similarly, a cryptographic key is used to lock or hide information from unwanted parties. The key can be shared with desired people so that they, and only they, can read your original message.

Unlike a physical key, a cryptographic key is made of a random string of characters. In the language of cryptography, a key transforms a simple message (plaintext) into an unintelligible (ciphertext) message through a process called encryption. Encryption ensures that the unintended parties cannot infer or alter it in any way. Next, the unintelligible ciphertext is again decrypted using keys to convert it into the original message. This cryptographic encryption and decryption using cryptographic keys ensure secure, private, and anonymous blockchain transactions, and if you want to know which tools to use for your transactions, read our guide about currently popular options.

2. Private and Public-key Cryptography Explained

In a blockchain, cryptographic keys are used in several ways to encrypt and decrypt data for secure and private communication. One simpler way to do so is called private-key cryptography. In private-key cryptography, a single key is used to encrypt and decrypt data. It’s computationally easier and takes less amount of time. Private-key cryptography is also called symmetric-key cryptography as the same key is used for encrypting and decrypting data. To know more about how cryptography works in blockchains, read our detailed guide here.

The most common type of cryptography used in blockchains is public-key cryptography. In public-key cryptography, there are two keys - a public key and a private key. The public key is used to encrypt data while the private key is used to decrypt data.

Public-key cryptography is much more secure compared to private-key cryptography. Public-key cryptography is also called asymmetric-key cryptography because two different keys are used to encrypt and decrypt data. Because of numerous business benefits of public-private key encryption, they are helping modern businesses, especially decentralized organizations, in different ways.

In asymmetric-key cryptography, the public key can be revealed to anyone but the private key needs to be kept secret. If we take the analogy of emails, the public key ensures that anyone can send you emails while the private key ensures that only you can read your emails or send emails from your email id. A private key ensures that you can access and use your crypto assets in the blockchain. So, if you inadvertently reveal your private key to anyone, you stand a chance to lose your cryptos.

Private keys can be of different forms. It can be a 256-character long binary code, a 64-digit hexadecimal code, or some other forms. Irrespective of its form, a private key involves a large number of characters to make it extremely difficult to guess.

Note that the private and the public keys are mathematically related. However, what makes public-key encryption secure is that no one can derive the associated private key from a public key. You can derive the public key from the private key, but it’s impossible to go the other way.

Let’s now look at how public key encryption works in blockchains.

3. How does Public-key Encryption Work?

In a blockchain network, the connected nodes (computer systems run by users) are located in distant geographical locations. Blockchain transactions are done in a trust-less environment without any intermediary. Therefore, you don’t need to trust other nodes or the entire system to get your transactions (like sending or receiving cryptos). These are smoothly done using cryptography, especially public-key cryptography.

Let’s now understand how public-key encryption works in blockchains. In public-key encryption, public and private keys work together to form a key pair essential to do any transaction. The public key is used to encrypt a transaction (for example, sending crypto to someone) so that it can be received by the intended party. The intended receiver then uses the private key decrypto and receive the transaction (for example, receiving crypto and establishing ownership).

When you own cryptos, you need a crypto wallet to store the same. A crypto wallet has a unique address which consists of a string of random letters and numbers and you can find out more about it from our article about this topic. When someone wants to send a crypto transaction to a blockchain network, they need this address in the blockchain. This blockchain address is basically a shortened form of the public key. Therefore, the blockchain address is essentially derived from the public key. Anyone can use this public key or blockchain address to send cryptos to the recipient. However, the recipient can access the funds using the private key only.

Let’s understand this process with an example. Let’s assume Sheldon wants to send 1 BTC to Monica. So, here are the steps involved in this Bitcoin transaction:

  1. Sheldon needs a public address (which is a shorter version of the public key) of Monica to initiate the transaction.
  2. Sheldon then uses his private key to digitally sign the transaction to establish its authenticity.
  3. Next, the transaction is encrypted in the blockchain, verified by miners/validators, and accepted in blocks. Public-key cryptography plays a crucial role in the verification and block-building process as well.
  4. Monica can now use her private key to decrypt the transaction and access the funds. Here, Monica needs to keep her private keys secret because anyone having access to Monica's private keys will be able to access the funds.

As you can see in the above example, public and private keys ensure that blockchain transactions can take place without the need for an intermediary. Also, public-key encryption helps do away with trusting central authorities to process transactions securely, privately, and anonymously.

On our website, you will find plenty of articles about cryptocurrencies which may help you make accurate and beneficial decisions about your crypto finances.

4. Importance of Public and Private Keys in Cryptocurrencies

Public key encryption, which involves private and public keys for secure transactions, makes cryptocurrencies possible. Public and private keys ensure that the crypto transactions are received by the right person, the blockchain network can work securely and privately without an element of trust, no intermediary is required and no bad element can disrupt the network. To find out more about how blockchain works, read our guide for blockchain beginners.

These keys play a crucial role starting from initiation of a crypto transaction to the final settlement. Also, the validators and miners use public-key cryptography to ensure that transactions are correctly recorded in blocks. Even though there is a difference between public and private keys, they work in sync to complete every single transaction. Public keys help in encrypting or sending transactions. Private keys are required to decrypt or receive the same.

When you say you own a crypto, you basically own the private keys that are associated with cryptos stored in a blockchain address. So, if you lose your private keys, you practically lose access to your cryptos. You cannot use them, sell them, or send them to anyone without the associated private keys. You may have heard the common phrase “not your keys, not your coins”. It simply means if you don’t have the private keys, you cannot call yourself owners of the crypto assets stored in a wallet.

This blockchain address or public key can be freely shared without worry. Anyone who would like to send you cryptos needs this public key. However, you can access these funds only by using your designated private keys. They play different roles while ensuring that together private and public keys make cryptos work efficiently.

When you master how blockchain, including private and public keys work, you can get familiar with our guide about gambling with cryptocurrencies. You will learn from it what are the best online casinos for crypto bettors and find some useful tips.

5. Final Words

The main promise of cryptocurrencies is to provide a secure, private, and decentralized financial network that works peer-to-peer without any intermediary. Therefore, creating a trust-less system is at the core of crypto’s functioning. Public and private keys, which are an essential element of public-key cryptography widely used in cryptos, ensure that crypto’s promises of security, privacy, and decentralization are achieved without having a watchdog or a referee. A public key helps in encrypting and sending a transaction to the blockchain while the private key helps in decrypting and receiving the same.

If you plan to trade cryptos and make profits of them, you may find our article including the list of the best crypto exchanges useful.

6. Private and Public Keys Explained FAQs

6.1 🔑 How do public and private keys work?

Public and private keys are part of public-key encryption used in cryptos. The public key is used for encrypting transactions while the private key is used to decrypt the same.

6.2 🔑 Where are private keys stored?

Private keys are typically stored in crypto wallets. Crypto wallets can be hot (connected to the Internet) or cold wallets (offline storage devices).

6.3 🔑 What is the importance of public and private keys?

Together, the public and private keys help authenticate crypto transactions, establish ownership of cryptos, enhance security, and make blockchains private. Moreover, public and private keys ensure cryptos can function without any governing authority. This post on private and public keys explained discusses how public and private keys work in sync in a blockchain.

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Comments (1)
football-fanatic
football-fanatic 2 months ago
OK, now these crypto transactions seems a bit clearer to me
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