A key is the blockchain version of a password.
A blockchain key is used by the key holder to sign transactions. When two parties want to exchange data, they will create a key as a hash code through a process of encryption. This hash is composed of a long sequence of letters, numbers and functions that make it difficult to guess. It is only once the transaction has been signed that the transaction can take place. This is why guarding a key is so important – it is the only way to access and transfer cryptocurrency on a blockchain. If a key is lost, then chances are that not even the most expert of cryptocurrency hackers and coders can access the data ever again. It is estimated that millions of dollars’ worth of Bitcoin (BTC) have become irretrievably lost in this way, never mind the additional value loss of altcoins as well.
Public vs. Private Keys – What’s the Difference?
A public key only has a once-off use which is to act as a link between the public and private data of a particular user. This key pairing between the public and private domains of the blockchain is known as an ‘asymmetric key pair.’ Public are intended for either a single transaction or data verification. Once a public key is hashed, it can only be decrypted by the associated private key. No other private or public key will be able to decode it. Once it is used, it becomes defunct and a new key will need to be generated for the next transaction even if the transaction is identical to the last.
A private key is unique to the user and is the cryptographic password used to access the owner’s personal data on their e-wallet. It is usually represented as a string of hashed alphanumeric characters. If it is lost, then no-one will be able to gain access to what is being stored. This means that any cryptocurrency stored there will become completely inaccessible and as good as worthless to the owner. Although this seems like a big risk, as we saw when discussing hashing, the greater the length of a password and the more varied its character composition, the more difficult it is for a hacking program to crack.
The need for such stringent measures became quickly apparent when Bitcoin and altcoins started becoming more popular, and hackers decided to start stealing coins. This is why hackers usually try to access the password through other means, such as through its being stored on an email address or cryptocurrency exchange platform. This is also why so many people argue for certain types of e-wallets over others.