Public key cryptography plays a vital role in the bitcoin ecosystem as it enables the receipt and protection of bitcoins over the network.
Private and public keys come in pairs. Let’s take a deeper look at how they work together.
When bitcoin is sent to someone, it’s sent to a public key. Only the individual possessing the corresponding private key can generate a valid signature to access and spend the bitcoin. To better grasp this concept, an analogy can be drawn between a public key and a P.O. Box.
Similar to how anyone can send mail to a P.O. Box, anyone can send bitcoin to a public key. However, just as only the rightful owner of the P.O. Box key can access the mail sent to it, only the person with the private key associated with that public key can spend the bitcoin it holds.
It is important to note that each private key has a unique corresponding public key, and vice versa. This one-to-one relationship ensures that the ownership and control of bitcoin is secure.
While it is perfectly safe to share a public key with others, caution must be exercised to keep the private key confidential. The private key acts as the ultimate safeguard for controlling the bitcoin associated with a public key, and its secrecy is vital to prevent unauthorized access and potential theft.
Another concept to grasp here is the “bitcoin address”.
Public keys and addresses are often misunderstood or used interchangeably in discussions about bitcoin. While they are related, there are distinct differences between the two. In the context of bitcoin, an address is typically a hash of a public key. Presently, addresses, not public keys, are primarily used for receiving bitcoin.
An address serves as a condensed representation or abbreviation of a public key. This serves the purpose of convenience and enhances security. When bitcoin is sent to an address, it is the associated public key that is ultimately used to verify the digital signature, allowing its bitcoin to be spent.
A “bitcoin wallet” is a software that generates and manages private and public keys, addresses, and transactions associated with them on the blockchain.
The process starts by generating a private key, which is essentially a large random number. The private key serves as the foundation for the subsequent derivation of the public key. By using specific mathematical operations, the wallet derives the corresponding public key from the private key.
The whole principle of public key cryptography is that deriving the public key from a private key is very fast and easy, while going back to the private key from the public key is impossible through mathematical calculations.
To further enhance security and usability, the derived public key is then hashed. Hashing is a process that converts the public key into a fixed-length string of characters. This hashing process ensures that the public key is obscured and transformed into a more manageable and standardized form. Additionally, a prefix is added to the hashed public key, and a checksum is added as a suffix, and encoded to base-58, resulting in what we commonly refer to as the address.
It’s important to note that while addresses are widely used in bitcoin transactions for simplicity, it is the underlying public key that is crucial for cryptographic verification. The address serves as a representation of the public key and helps to ensure privacy and security while receiving bitcoin.
Understanding the relationship between public keys, addresses, and wallets provides a foundation for comprehending the intricate workings of the bitcoin network and the cryptographic mechanisms that safeguard the ownership and transfer of the digital money.