If you want to send or receive crypto currencies and create a crypto wallet, you will be confronted with the concepts public key, private key, secret phrase and wallet address. You need to have a clear understanding of these terms to safely trade with and manage your crypto assets.
Don’t worry, however, these concepts are not as complicated as they seem at first! In today’s article, we will offer a simple, easy-to-understand explanation and a comparison with sending and receiving money in the traditional banking system.
First, however, we briefly need to talk about “cryptography” – after all, the domain to which cryptocurrencies owe their name.
Cryptography
The term cryptography is derived from old Greek “kryptos” and means “hidden” or “write secretly”. The field of cryptography deals with how to encrypt and decrypt information as to keep information confidential and as to prevent unauthorized persons from accessing the information in transit. The domain was mainly pioneered and led by academic and military research.
For decades, encryption was done through using a secret phrase that sender and recipient used to encrypt and then decrypt the message – as the same secret phrase was used, this was also called “symmetric encryption”. However, downsides of this format were that if any unauthorized person gained access to the secret phrase, they could not only access the information but impersonate the sender and therefore cause even greater damage.
Asymmetric cryptography was pioneered in the 1970s and solved this problem by introducing the public-private key pair. The private key is a big, random prime number and can be used as a unique ID specific to a party to encrypt, decrypt or sign a message or file.
Cryptography and more specifically asymmetric cryptography was the forefather and technological foundation upon which Satoshi Nakamoto created Bitcoin, hence the name “cryptocurrencies”.
Crypto keys come in pairs
Every crypto wallet consists of a unique pair of public and private keys. There is a one-way-relationship between private and public key: through means of cryptography the public key for a private key is derived, hence a crypto-key-pair results.
However, it does not work the other way around. It is impossible to derive the private key through a public key. These key pairs allow sharing the public key which can be used by others to encrypt or verify information. This is what so-called asymmetric cryptography is all about and was a big breakthrough in encryption when first developed in the 1970s.
What is a Private Key?
A private key is a secret code that is used to access a cryptocurrency wallet and authorize transactions. It is a long string of alphanumeric characters that is mathematically related to the public key. Think of it as a password to access your cryptocurrency funds. It is crucial to keep your private key secure and not share it with anyone. If someone gains access to your private key, they can steal your cryptocurrency funds.
The private key is to a crypto wallet similar to what an ATM PIN or Online Banking TAN is to a bank account. Every wallet has one or multiple unique private keys. It is only known to the wallet owner and used to prove he rightfully owns the account and contains funds and can send transactions.
Each crypto transaction sent is signed with the wallet’s private key – that private key however is not revealed to any outside parties. Just like you shouldn’t tell anyone your ATM PIN because they could use it to access your funds, you must keep your private key secure at all times because other people could use it to access and send (steal!) your funds. Because the private key would be a super-complicated random number 256-bit-number that is impossible to remember and note, the idea of the secret phrase was invented. The secret phrase is a string of words that is used to derive the private key. It is crucial to keep the secret phrase secure and not share it with anyone, as it is essentially the key to your crypto wallet. Once the private key is generated, it can be stored securely in your wallet software or on a hardware device, such as a Ledger or Trezor wallet. Additionally you can use a personal wallet on Blocktrade.com.
What is a secret phrase?
If a user was to lose (and/or forget) the private key to his wallet, he could no longer access, manage or send the funds contained within the wallet. In short, the funds would irretrievably be lost. To avoid this from happening, there is a backup mechanism built into crypto wallets called the secret phrase (sometimes also referred to as mnemonic phrase, backup seed, recovery phrase).
A secret phrase is a collection of 12-24 words that store all the information required to recover and access all the funds of a crypto wallet. It can be used to derive the private key of the wallet as a secret phrase is a representation of the random number your private key is.
An example of a 12 word secret phrase could be the following :
donkey pony lizard comfort house frame ignore push glass cheap mouse secret
Wallet providers will instruct users to note the generated secret phrase on a piece of paper and store it securely, out of reach for any third person. If any other person gets access to your secret phrase, they could steal all your crypto funds stored in that wallet!
What is a Public Key?
The public key of a crypto wallet is derived from the corresponding private key using a mathematical function known as “elliptic curve multiplication”. It is a cryptographic code that is used to encrypt messages and verify digital signatures. A public key is visible to anyone and can be shared with others to receive cryptocurrency payments. It is important to note that a public key is not the same as a wallet address, as some people may believe. A public key is derived from a wallet address and is used to facilitate transactions, while a wallet address is used to identify a destination for cryptocurrency transactions.
What is a Wallet Address?
Digital assets and crypto funds are stored in, or rather assigned to, a wallet address. A wallet address is a unique identifier that is used to receive or send cryptocurrencies and can be likened to a bank account number/IBAN. The wallet address can be shared with another person and is used to receive transfers of digital assets there.
The wallet address is mathematically derived from the wallet’s public key through a one-way function called “hashing”. The wallet address is a shorter representation of the public key’s final part and usually has a length of 160 bits.
If you want someone to send you cryptocurrency, such as 0.001 BTC, you will need to provide them with your wallet address. A wallet address is a unique identifier for a cryptocurrency wallet, and it’s where the sender will send the funds. It’s important to note that a wallet address and a public key are not the same thing, as the wallet address is derived from the public key.
However, it’s important to understand that while cryptocurrency transactions are not anonymous, they are pseudonymous. This means that anyone can view the transaction history associated with a wallet address using a blockchain explorer.
Wallet addresses typically consist of around 25 to 40 alphanumeric characters, including numbers, letters, and sometimes special symbols. The format of the address depends on the specific blockchain being used. For example, the first Bitcoin address ever created was:
1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
It’s safe to share your wallet address with others to receive cryptocurrency and allow them to view your transaction history. However, wallet addresses are typically not tied to a specific identity, so they don’t reveal who owns the wallet.
Exchanges like Blocktrade are required to verify users’ identities and postal addresses in accordance with KYC/AML regulations. As a result, an exchange wallet address can be linked to a user’s identity, but this information is only visible to the exchange itself.
To learn more about different cryptocurrency wallets check out these articles:
The Best Fantom (FTM) Wallets
The Best Cardano (ADA) Wallets
How they all work together
Now that we have explained private key, public key, secret phrase and wallet address, let’s discuss how they go together. When you create a crypto wallet with a wallet provider, you will receive all these four elements. Here is the role of each of these 4 concepts for you as a wallet user:
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You create a private key when creating a crypto wallet. You never do anything with it consciously, but it is used to sign your transaction when you send crypto assets.
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You create a secret phrase and store it safely on a piece of paper. You use it if you ever have to restore your crypto wallet funds after losing the private key.
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The public key is used to verify that you are the owner of a wallet address and that you can receive crypto assets. You personally don’t use your public key when making or receiving a transaction.
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You tell your wallet address to the sender if you are to receive a transaction or use it if you yourself send money there from another wallet of the same cryptocurrency. Likewise, you need the wallet address of a recipient if you are to send crypto assets to them.
To read more about choosing the best wallets check out: How to choose the best crypto wallets
FAQ
How to Get a Private Key from a Wallet Address?
To get a private key from a wallet address, you will need to access the wallet software or service you used to create the address. The specific steps may vary depending on the service or software you used.
Is a Public Key the Same as a Wallet Address?
A public key and a wallet address are not exactly the same thing, but they are related. A wallet address is derived from a public key using a mathematical algorithm.
Is a Private Key the Same as a Wallet Address?
A private key is not the same as a wallet address. A private key is used to sign transactions and prove ownership of a particular wallet address.
What is an Ethereum Address?
An Ethereum address is a unique identifier used to send and receive Ether and other Ethereum-based tokens. It is a string of 42 characters starting with “0x”.
Is an Ethereum Address the same as a Public or Private Key?
An Ethereum address is not the same as a public or private key, but it is derived from a public key using a specific algorithm. The public key is, in turn, derived from the private key.
