What’s a Private Key?

Welcome to the second chapter of your crypto crash course!

In part 1, we covered the basics of crypto, blockchain, and Web3. It was more like an overview of what they are and how they work together. Most importantly, we explained the origin of cryptocurrency and the blockchain world, along with different generations of blockchain technology. It’s time to take the next step in your journey into the crypto world.

If you’re thinking “ how do I get started into crypto?”, you’re in the right place. In this article, we’ll explain the basics of owning and controlling crypto. In the process, we’ll discuss what are public and private keys and why they are important to keep your funds secure.

Public key Vs private key

Whenever you buy your first crypto, it automatically goes to a newly created address on the blockchain. Every blockchain address is generated along with two related pieces of information – the private key, and the public key. These keys allow you to control the cryptocurrency on that particular blockchain address and receive crypto from other people.

You can think of your blockchain address sort of like a letterbox. Similar to how anyone can send letters to your letterbox, anyone can send funds to your blockchain address. But only you, the owner of the box, can open it and take the contents out. And only you can access and control the funds sent to your blockchain address.

Blockchain is a digital version of this system, and this is where the concept of the private key and public keys come in.

Public Key

A public key is a public receiving address that enables you to receive crypto. Any user on the blockchain can send funds to your address using your public key.

The public key is similar to your bank account number, such as IBAN or SWIFT, or your postal address in the letterbox analogy. Anyone can send you money using your bank account number but they cannot control the funds. Same way, the public key does not give access to your blockchain address, it is purely used for sending funds.

Private Key

While the public key is like your bank account number, the private key is more like a PIN number or password. It gives you access to your blockchain address and your funds. Whoever has the private key, can control and spend the stored cryptocurrencies.

You’ll now be aware that the security of your crypto depends on your private key. So, how you manage that key is of critical importance to your assets. There are a couple of factors to consider in this respect. First, are you in control of the private key of your crypto? And have you secured the key properly against all the possible risks?

We’ll talk about properly securing your private key in the next article. But, for now, let’s look at the other question: do you control your private key?

Crypto without a private key

For beginners, buying cryptocurrency on a crypto exchange is the easiest way to get started. However, when you buy cryptocurrency this way, the purchased funds directly go to your wallet on the exchange platform.

When you buy cryptocurrency on a crypto exchange, a blockchain address will not be created and you cannot get your public and private keys in this method. You would have to trust the platform with your funds. The exchange itself manages the key and lets you create a password to access your wallet on the platform.

While most crypto exchanges follow strict guidelines and ensure the security of your funds, you will not have private keys. That means you would have to rely on the platform and cannot actually own or control your funds.

There’s a saying in the cryptocurrency world, “Not your keys, Not your coins”. It means that if you do not hold your private keys, the coins are technically not yours. Let’s look at why this popular phrase holds some truth.

You Don’t Really Own Your Crypto

Using login details and passwords to get access to funds on the crypto exchange is simple. But, it also means you’re relying on the platform to give you access to your funds, instead of communicating directly with the blockchain. It’s like trusting a third party with the keys to your home.

Using an exchange wallet puts a third party between you and your blockchain address. And that means the control of your funds is centralized. Sounds familiar?

The Exchange Can Restrict Your Activity

The whole point of crypto is providing freedom to the users so that they can use their funds based on their own preferences.

But, similar to banks, crypto exchanges might have certain withdrawal or deposit limitations and policies. They can even question your activities. In some countries, crypto exchanges can even restrict you from making transfers. This is exactly not the kind of system crypto is striving to achieve.

Not your key, not your crypto!

If you would like to have one key takeaway from this article, it should be this: any time you’re not managing your own private key, you don’t really own your crypto.

However, if you are an absolute beginner, it’s okay to buy crypto on popular crypto exchanges. In fact, many of the crypto exchanges are practicing advanced security measures. You just have to choose the best platforms that are reliable and safer to use.

As you learn more about crypto and blockchain, you can always start using direct blockchain addresses, public, and private keys. The wise thing to do after buying digital assets – whether they are NFTs, coins, or tokens – is to make sure you’re storing them in a wallet you own the keys for.

Let’s go a bit deeper with our conversation about private keys in the next article. We’ll take close look into the nuts and bolts of secure self-custody, to help you store your funds safely.