What are private and public keys?
- Public and private keys are the foundation of public-key cryptography, used to encrypt and decrypt data on blockchain networks.
- A public key is visible to everyone and is used to validate transactions, while a private key acts as a confidential password used to sign transactions.
- Losing a private key means losing access to your crypto forever, making secure storage and backups essential.
Public and private keys are strings of characters used in public-key cryptography to encrypt and decrypt data, as well as to sign and verify blockchain transactions. This is why digital currencies like Bitcoin or Ether are referred to as crypto. Having no physical form, no central authority to verify transfers or ownership of coins, the functionality of crypto fundamentally depends on cryptography.
Two cryptographic keys form the core of this system: a public key and a private key. The public key is visible to everyone on the network and is usually the basis for generating the blockchain address. The private key, on the other hand, works somewhat like a password and should only be known to the person who owns the address.
Who holds that key depends on how you store your crypto. With a self-hosted wallet, you hold the private key. With a centralized exchange, the exchange manages it for you, and you access your funds through your account login instead.
How does symmetric cryptography compare to asymmetric cryptography?
Public-key cryptography is military-grade technology turned open source. Its distinctive feature is that it’s asymmetric, which means that instead of using a single key to encrypt and decrypt information, a set of two cryptographic keys is used: the public and the private key.
| Feature | Symmetric cryptography | Asymmetric cryptography |
| Keys used | A single universal key | A set of two keys (public and private) |
| Primary function | Encrypting and decrypting data | Identifying participants, proving ownership, encryption, and secure key exchange. |
| Security risk | Compromised if the single key leaks | If a private key leaks, only one address is compromised |
If you want to protect your data with symmetric cryptography, everyone involved has to have access to a universal key. This key allows the participants to scramble data before transmitting it, which prevents everyone else from reading it if the transmission is intercepted. The key is also used to decrypt the data upon reception. However, this system is vulnerable, because the whole process is compromised if the key leaks.
Asymmetric cryptography does not use a single key, but instead allows every participant to get their own, unique set of keys: a public key that is known to everyone and is used to identify a participant, and a corresponding private key that no one else knows. Since the keys are inherently mathematically connected, the private key enables its owner to prove that they are the legitimate person behind a public key.
On a blockchain network, transactions are made from address to address, which is to say from one owner of a public key to another owner of a public key. The only way to prove that your transaction is legitimate is to sign (that is, encrypt) it with your private key. Your public key being known, anyone can easily check if the transaction really did come from you.
In an asymmetric system, if a private key is leaked, only the address it corresponds to is compromised. But losing your private key means losing your funds forever, with no option of recovery, as you would not be able to create digital signatures anymore to prove which public keys belong to you.
That's true if you hold your own key in a self-hosted wallet. If your crypto sits on a centralized exchange instead, the exchange manages your key, so losing your login isn't the same dead end — you recover account access the way you would with any other online account.
What are the advantages of public-key cryptography?
Public-key cryptography is essential for the operation of blockchain as we know it. It is used as a means of authentication, where a digital signature verifies the owner of the public address. At the same time, the signature ensures integrity and verifies the contents of the encrypted information, preventing any changes from being made to the original later on.
Since private keys are secret and known only to their owners, users of a blockchain network can rely on complete confidentiality, even though their transactions are recorded on a public ledger. While allowing users to remain pseudonymous, public-key cryptography ensures that as long as the private key is safely in its owner’s possession, they are the only one who can ever make transactions from their address.
To make use of the advantages of asymmetric cryptography, your private keys must remain secret and you should back them up, in case your wallet gets lost or breaks down.
That backup responsibility falls on you if you self-custody. On a centralized exchange, the exchange secures the key itself — your job is keeping your account (password, 2FA) secure.
Disclosures
Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that these articles are meant for information and do not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any cryptocurrency, or to engage in any investment activity or strategy.
Cryptocurrency trading is offered through Bitstamp UK Ltd ("BSUK"), registered with the Financial Conduct Authority as a cryptoasset service provider.
Cryptocurrency held through BSUK is not covered by the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS).