What Are Crypto Private Keys and Why Are They Important?

Just like paper money, you should protect your cryptocurrency holdings. But to do so, you should know what a crypto private key is and how it works.

Several elements come together to make the cryptocurrency ecosystem work seamlessly. Think of the entire infrastructure like a complex piece of machinery, with each cog providing a crucial function regardless of its size.

A pretty significant cog that is used by each and every crypto owner is a private key. But what exactly are private keys, how do they work, and why are they so important?

What Is The Purpose of A Private Key?

With the cryptocurrency industry now being worth trillions of dollars, it's no surprise that cybercriminals are targeting crypto owners in an attempt to get a hold of their funds. Some individuals have millions of dollars in crypto to their name, so there's no doubt that very high-security levels are needed to protect users from online attacks.

This is where private keys come into play. These are long lines of letters and numbers used to authorize withdrawals from a wallet and digitally sign transactions.

Different cryptocurrencies can have different private key lengths. Bitcoin, for example, uses 256-bit private keys, which are very long and very complex. Private keys can also come in QR codes and 64-bit hexadecimal codes.

Each crypto wallet owner has their own unique private key, and the key itself is stored in the wallet. A common misconception about crypto wallets is that they literally store crypto funds, but this is only true in a very indirect sense.

In reality, crypto wallets store private keys, giving users access to their funds. A private key is essentially a gateway to your crypto, and a malicious individual who has gained access to your private key can make large withdrawals from your wallet without your permission.

However, there are cases in which another party holds your private key along with you. If you have a custodial wallet, the wallet service or exchange that provides you with it also has access to your private key.

Many well-known wallet providers are custodial, such as MetaMask. Still, many providers choose to offer a non-custodial service to their users, wherein the user alone holds the private key. This aligns more with the privacy and security element of cryptocurrency in general.

Despite that, many still prefer custodial wallets. You can check out or piece that breaks down the differences between custodial and non-custodial wallets if you want to learn more.

Crypto wallet owners also have public keys, which other users can see and share anywhere. Public keys are created from the private key and are shortened into a wallet address, which you can use to deposit funds into someone's wallet. They also encrypt transactions, making them secure. But public keys are only used for wallet deposits, not withdrawals.

How Are Private Keys Made?

The process involved in creating a private key is very complex. An asymmetric algorithm generates the private and, therefore, public keys attributed to each crypto user. We won't be doing a deep dive into asymmetric algorithms today, as you don't need to understand the entire process to understand private keys.

In short, a commonly known algorithm called RSA, or Rivest–Shamir–Adleman, is used to produce private and public keys. The private key represents two large prime numbers generated in the algorithm, and the product of these prime numbers is then used to generate the public key.

As a crypto user, you'll likely never have to come into contact with this kind of process. It is the keys themselves that are important.

Private Keys Are Crucial in Protecting Your Crypto

Private keys are an integral part of every blockchain's security. You cannot authorize withdrawals and transactions without your private key, meaning you'll be pretty stuck as a crypto user. On the other hand, if a malicious individual ever gets hold of your private key, your crypto funds become vulnerable to theft.

This is why it's always essential to choose reputable crypto wallets with a range of useful security features. That way, your private keys, and therefore your precious funds, will always be safe.