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Understanding crypto keys & addresses



Understanding crypto keys & addresses

Understanding crypto keys & addresses

If your only interaction with crypto is buying through an exchange, it can be difficult to understand concepts like private keys and public addresses because you have limited exposure to them. But since it’s good practice to take full control of your cryptocurrency, it’s important to understand what private keys and public addresses are and how they work.

One of the most common strategies people use to learn is association. Comparing a new topic or idea to something you already know makes it irrelevant and provides a framework for understanding its rationale. You can use this approach when trying to explain the concepts of cryptographic keys and addresses to someone new to the subject by relating them to keys and addresses with which they are familiar. relative to their physical home.

Keys and Addresses – Security and location

A good place to think about keys and addresses within cryptography is to think about how they work in relation to where you live. A physical key is a security feature that allows anyone with this key to enter a property, such as a house or apartment, and gain access to everything inside. For this reason, the key is protected and you should think carefully about sharing it, especially if you have valuables at home.

Even if you protect your house key carefully, you need to share its location — as the information that makes up your address tells you — so that everyone can find it. Delivery, guests, facilities and communications all need to know where to find you. While the country-specific variations are small, property addresses follow a similar format, otherwise their usage would be virtually impossible to verify: house name/number, house number, city, postcode.

Some people choose not to share their address because privacy and security are particularly important, such as celebrities or someone in a position of power. You can even create an alias like a mailbox for more privacy. Addresses are assigned to a property as part of a centralized filing system, such as a land register, which can be referenced to look up addresses in a record.

Keeping in mind these familiar concepts of keys and addresses and their related themes – security and location – we can try to relate them to the functions keys and addresses provide in cryptography.


What are cryptographic keys?

Just as a physical key protects the contents of a property or vault, in the context of cryptography, the key protects virtual assets – cryptocurrency – that reside at a virtual address on the blockchain.

Like a physical key, a private key gives its holder access to the money it unlocks, so it’s designed to be extremely hard to guess.

A Bitcoin private key can be any 256-bit number (bits – the smallest unit of information in computers), but is usually represented by a sequence of 52 letters and numbers starting with the letter L or K, in what is known as a wallet import. module.

Given their length and the random way keys are generated, the chances of two private keys being the same are greater than all the grains of sand on Earth.

But while this makes them impossible to guess, when exposed it automatically exposes the resources they are protecting. This zero-sum property means that private keys must be kept secret and strictly protected. Remember that crypto customer support is not available, the important thing is to be in control, which means taking full responsibility.


In addition to the online threat of bad actors, there is always the risk of them being accidentally lost or destroyed. Read more about the most famous lost bitcoin stories written by Crypto.

Fortunately, crypto wallets can derive all private keys from a single piece of data known as a Seed, a collection of memorable words known as mnemonics. Think of the seed as a very long password string that acts as full security for recovering the private key. Therefore, protecting it is very important.

The term used to describe wallets that can extract all private keys from a single seed is called hierarchical deterministic or HD. Almost all modern non-archival wallets have this feature.

What are cryptographic addresses?

On the Bitcoin blockchain, the location of virtual assets protected by a private key is indicated by a public address, which follows a similar alphanumeric format but is shorter and contains 26-35 characters depending on the format.

Like your mailing address, a public Bitcoin address, also known as a billing address, can be shared because it doesn’t provide access to funds. Since the Bitcoin blockchain is completely open, anyone with an internet connection can view the balance via an address using a so-called block explorer.


Think of Block Explorer as a blockchain browser where you search for addresses or transaction IDs rather than keywords, similar to how you search a database of real estate addresses. While public addresses don’t contain any personally identifiable information, they are not anonymous, but rather pseudonymous, meaning that someone determined enough could identify you by association.

For example, if you add a Bitcoin address to your Twitter bio and then tweet something that identifies you, it could be inferred that you own that address and its value. Given the privacy and security concerns of reusing public addresses, they are meant to be used only once.

Whenever you want to receive funds, most crypto wallets will automatically create a new public address, meaning the only detail your share will be public about is the transaction sent to that address. You might think that the constant generation of public addresses would make managing them in the wallet a nightmare?

This is actually not the case, as another key works in the background to make it easier for you to create addresses and manage the funds in your crypto wallet. In the case of Bitcoin, it’s called an extended public key, or xpub key for short, which is a much longer form of a standard public address.

All shared public addresses are derived from the xpub key, so your wallet knows to allocate incoming funds to a single Bitcoin account within the wallet. While your xpub key doesn’t give anyone access to your funds, sharing it gives someone your entire Bitcoin balance for that Bitcoin account.


Where can I find my Bitcoin key?

If you’re wondering where to find the private and extended public keys we’ve described, it depends on the type of crypto wallet you’re using. Some wallets place the storage (management) of the keys in the hands of the service provider; the most obvious example is cryptocurrency exchanges, such as Coinbase or Kraken. Your exchange wallet allows you to create an address to receive or send money, but you can’t access private keys or extended public keys. Some crypto users would rather exchange keys than take responsibility.

The downside is that if an exchange is hacked or shut down suddenly, private keys and funds can be compromised, and there is no specific law to protect stored cryptographic assets. This is why one of the most common crypto mantras is “no keys, no coins”. The opposite of a custodial wallet, where you let a third party manage your private keys, is a wallet where you control them.

Your private keys are encrypted in software (if it’s an app) or hardware (if it’s a physical device) and compiled into the seed presented above. The extended public key can be accessed through the settings of any wallet account, but is rarely needed. One example is the merging of incumbent businesses to collect cryptocurrency taxes. Your seed is generated when you set up a wallet and you are prompted to create a copy of it. The seed storage method is critical because it matters. You should avoid storing it online as it can be exposed to hackers and uses a robust and secure offline method.

The most common way to store seeds is to write the sentences on paper – most hardware wallets come with a seed return form. Paper may be cheap and convenient, but it’s not the strongest material, so those who are serious about their coding place their pips on a sheet of stainless steel.

  • Private Key: A randomly generated string of data that unlocks cryptocurrency stored on the public blockchain in a virtual location. It must always be kept secret otherwise the money will be stolen.
  • Extend Public Key (xPub) – A randomly generated string indicating where all the cryptocurrency in the wallet is located on the public blockchain. It must be kept secret to protect privacy.
  • Public Address: A randomly generated string of data derived from the xPub key that specifies the location on the public blockchain of a single amount of cryptocurrency held in a wallet.
  • HD Wallet: A hierarchical deterministic crypto wallet is one that can derive all private keys from a single piece of information called a Recovery Seed.
  • Recovery Seed – A collection of unique phrases called mnemonics – usually 12-24 – which act as the master password for recovering all funds in the HD wallet. Seeds are generated when the wallet is set up for the first time.
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