What is a Private Key?
A private key is a sophisticated form of cryptography that allows a user to access his or her own funds. A private key is an integral aspect of digital assets and its security make-up helps to protect a user from theft and unauthorized access to funds.
BREAKING DOWN the Private Key
When dealing with digital assets, a user is usually given a public address and a private key to send and receive coins or tokens. The public address is where the funds are deposited and received. But even though a user has tokens deposited into his public address, he won’t be able to withdraw them without the unique private key. The public key is created from the private key through a complicated mathematical algorithm. However, it is near impossible to reverse the process by generating a private key from a public key.
The private key can take a few different forms, usually depicted as a series of alphanumeric characters, which makes it hard for a hacker to crack. Most users represent their wallet keys in wallet import format, which has 51 characters. Think of a public address as a mail box, and the private key as the key to the box. The mailman, and anyone really, can insert letters and small packages through the opening in the mailbox. However, the only person that can retrieve the contents of the mailbox is the one that has the unique private key. It is therefore, important to keep this key safe because if it is stolen or gotten without authorization, the mail box can be compromised and you can lose access to your tokens and/or coins.
A digital wallet stores the private key of a user. When a transaction is initiated, the wallet software creates a digital signature by processing the transaction with the private key. This upholds a secure system since the only way to generate a valid signature for any given transaction is to use the private key. The signature is used to confirm that a transaction has come from a particular user, and ensures that the transaction cannot be changed once broadcasted. If the transaction gets altered, even slightly, the signature will change as well.
If a user loses his/her private key, s/he can no longer access the wallet to spend, withdraw, or transfer coins. It is therefore, imperative to save the private key in a secure location. There are a number of ways that a digital wallet, which contains a private key, can be stored. Private keys can be stored on paper wallets which are documents that have been printed with the private key and QR Code on them so that it can easily be scanned when a transaction needs to be signed.
The private keys can also be stored using a hardware wallet which uses smartcards or USB devices to generate and secure private keys offline.
The type of storage mentioned above is called cold storage, as private keys are stored offline. The other type of wallet, a hot wallet, stores private keys on devices or systems that are connected to the internet. Examples of these wallets include desktop wallets (e.g. Electrum), mobile wallets, and web-based wallets (e.g. Coinbase).
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