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If you’ve been deep into the world of bitcoin, you’ve probably come across the concept of crypto wallets and even heard of private or public keys. but what exactly are they?
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In this article, we take a look at the differences between public and private bitcoin keys, and help you understand how they help you send and receive funds securely.
a crypto wallet allows you to send, receive, view and spend cryptocurrencies. The wallet is also where your keys (both private and public) live, giving you secure access to whatever crypto you hold.
There are different types of crypto wallets: simple hosted crypto wallets, where a platform looks after your private key for you, and non-custodial wallets, where you control your private keys without any third party involvement. There are also hardware wallets, where your keys are stored offline, which some consider to be more secure. they all share one characteristic: they are used to store your cryptographic keys.
A private key is a secure code that allows the holder to transact in cryptocurrencies and prove ownership of their holdings. bitcoin keys specifically feature a 256-bit string displayed as a combination of letters and numbers. it is stored inside your crypto wallet, allowing you to access your bitcoin whenever you need it.
Keep in mind that if someone manages to get your private key, they will also gain access to your bitcoin holdings, putting your crypto at risk. The same goes for losing your private key: if you can’t access it for whatever reason, you probably won’t be able to access your coins.
The risks associated with misplacing or losing your private key cannot be emphasized enough, and you will want to seriously consider them before diving into cryptocurrencies. regulations on the use and custody of private keys are still under development; In Germany, for example, the custody of clients’ private keys is a regulated financial service.
Unlike a private key, a public key is designed to be revealed to other people so they can send you cryptocurrency. it is tied to the holder’s private key, which is needed to “unlock” the public key. sometimes a bitcoin address is used for transactions as they are essentially compressed versions of the public key.
Imagine public and private keys as you would your home address and house keys, respectively. People will need your home address to get through, but will only be able to enter with your home keys.
A bitcoin address is a unique string of numbers and letters 26 to 35 characters long that shows where a bitcoin payment was sent from and to. you can generate a bitcoin address from your crypto wallet if you want to use one in a transaction. For security reasons, experts recommend generating a new bitcoin address for each transaction.
absolutely not. You should never share your bitcoin private key, but you can share a bitcoin address with anyone who wants to send you bitcoin. Think of the bitcoin address as an encrypted form of your bitcoin public key for easier use in transactions.
If you want to pay someone using bitcoin, it’s a pretty straightforward process:
- make sure you have enough bitcoin in your wallet to cover the amount you want to send and make sure you have selected the correct currency.
- obtain the recipient’s bitcoin address or public key and enter it into the “recipient” field in your wallet. (note that different wallets and platforms may use slightly different language).
- double check that you have entered the correct public key. if you enter the wrong public key, your bitcoin will go to someone else and you probably won’t be able to get it back.
- enter the amount you want to send.
- click “send” and you’re done.
If you expect to receive some bitcoin, here’s what to do:
- open your crypto wallet and select “receive” to access your public key (the specific language used may change depending on your wallet).
- share your public key with the sender.
- sit back and wait for the bitcoins to appear in your wallet.
As we mentioned earlier, keeping your private key secure is the most important part of making sure no one else has access to your bitcoin. never share your private key with anyone. remember that for transactions, other people only need your public key or bitcoin address. If possible, it’s a good idea to keep your private key offline rather than on a device that can be accessed over the internet. If you’re especially concerned about security, consider hardware wallets as an extra secure form of offline storage. the advantage here is that they cannot be hacked when you do not entrust your key to a third party.
It may be a good idea to back up your private keys in case you lose them. the types of backing available to you will depend on the crypto wallet you use. There are three main ways to back up your private key:
- a seed phrase, which is a phrase consisting of 9 to 24 regular words
- a backup of the wallet file
- save a copy of the private key in a very secure place
We have delved into public and private bitcoin keys, but this article only scratched the surface of everything there is to know about cryptocurrencies. Whether you want to know more about cryptocurrency and security, or want to take a step back and learn the basics of cryptocurrency, n26 is here to help you every step of the way.