In the modern world of electronic communication and business, privacy and security are big concerns. We all hear horror stories of personal information and financial assets being hacked and stolen, which highlights the need for encryption and protection of our data. These concerns are just as valid when it comes to digital currency transactions, and public and private keys play a pivotal role in protecting these investments. Coin Pursuit will be dedicating this article to what these keys are, and how they work.
When you first invest in cryptocurrency, along with a digital wallet to store your currency, you're issued unique public and private keys. These are long strings of code that identify you as either the sender or recipient of digital currency in a transaction with another investor or merchant. These keys are generated by what is called an “asymmetric key algorithm.” Before we go any further, a working definition is in order.
Symmetric key algorithms mean that both the recipient and the sender of digital information have the same key. Since they both have this key, and can therefore decode the encrypted data, they're allowed to exchange confidential information. Only those who have this key can unlock the code and thus communicate with one another.
By contrast, asymmetric key algorithms work with two different keys, one public and one private. The two are created together, and linked together, but only you have access to the private key. Your public key is just that—and it's published in public directories so investors and merchants can do business with you. When a transaction is made, the other party uses your public key to initialize it, and you use your private key to finalize it. Your private key acts as a digital signature, and proves you're you. Comodo.com puts the transaction process in layman's terms like so:
...if Bob wants to send sensitive data to Alice, and wants to be sure that only Alice may be able to read it, he will encrypt the data with Alice's Public Key. Only Alice has access to her corresponding Private Key and as a result is the only person with the capability of decrypting the encrypted data back into its original form.
As only Alice has access to her Private Key, it is possible that only Alice can decrypt the encrypted data. Even if someone else gains access to the encrypted data, it will remain confidential as they should not have access to Alice's Private Key.
With that said, your private key should be closely guarded, and not given out to anyone; if someone else gets a hold of it, they can intercept the transaction and steal from your currency account. Your private key is as unique an identifier as your Social Security number and should be treated as such.
Public keys only carry as much information as you want them to; they're unique identifiers, yes, but they don't divulge your name, physical address or any other personal information. If in the course of a transaction, you want to share any of this information with someone else, you can, and it will only be between the two of you; it will be encrypted along with the other transaction info, and can only be decoded with a private key on the other end. Therefore, if you wish, you can remain anonymous during a cryptocurrency transaction, though you're still identified by the system as a unique user.
In order to assure security, both public and private keys are composed of very long strings of encrypted data; each generally contain 30 or more four-character alphanumeric blocks. The logic here is that the more information these key codes contain, the more difficult they are to decode. It should be noted that many types of digital currency also offer added layers of security on top of public and private keys, such as password-protected transactions and currency codes—the latter being unique identifiers for individual coins. Cryptocurrency issuers take the security of your investment very seriously; when shopping around, it never hurts to ask exactly what measures are being taken to protect your coins.
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