Public keys and private keys simply explained

Private and public keys are the foundation of security in the crypto sector. They ensure that you can protect and manage your digital assets. In this article, you'll learn how the two types of keys work, how they interact – and why they’re so important. You'll also get practical tips on safe storage and learn how to keep a close eye on your crypto assets with the right handling.

• Public and private keys form a cryptographic key pair that secures transactions on the blockchain and protects your digital assets.

• The private key is a secret access code that allows you to sign transactions and manage your cryptocurrencies.

• The public key is publicly visible and is used to receive transactions or verify signatures.

• Modern wallets such as HD wallets generate multiple keys from a single seed phrase, making backup and recovery easier.

• Safely storing the private key – for example, in a hardware wallet – protects your digital assets from loss or unauthorised access.

The benefits of cryptographic encryption methods

Encryption methods ensure that data can only be read or processed by authorised recipients. In the digital world – and especially with cryptocurrencies – they play a crucial role in security and trust. Two types of methods are used: symmetric and asymmetric encryption.

What is cryptography?

Cryptography is the science of secure communication. It uses mathematical methods to ensure that information is protected and only readable for certain recipients. In the world of cryptocurrencies, cryptography is essential for the secure encryption and verification of transactions – for example, through the use of public and private keys.

Symmetric encryption

In symmetric encryption, the same key is used for both encryption and decryption. So the sender and receiver must both know the same secret key. This encryption method is suitable for situations where both parties can securely exchange a shared key.

The method is used, for example, for encrypted files or local storage devices. In the context of blockchain and transactions, it is less common, as it doesn't allow for independent identity verification.

Asymmetric encryption

Asymmetric encryption is based on a key pair: a public key for encryption and a private key for decryption. It is used in cryptocurrencies, digital signatures and in the public key process.

The biggest advantage is that the public key can be openly shared while the private key remains secret. This allows data to be securely transmitted and transactions clearly verified – without sensitive information needing to be disclosed. This encryption method forms the foundation for many security functions in blockchain technology.

What is a public key?

The public key is a publicly accessible key that others can use to send you cryptocurrencies – similar to a postal address. It is part of the asymmetric encryption key pair and closely linked to the private key.

Public keys play a central role in addressing and securing transactions on the blockchain. They allow data to be clearly assigned without revealing sensitive access credentials.

What is a private key?

The private key is the secret key in the key pair and is therefore the most important access to your cryptocurrencies. Anyone who knows it can have unrestricted control over your tokens or coins – regardless of whether they received them themselves. The private key is thus comparable to an access code or a signature that you use to sign and approve transactions.

Private keys consist of long strings of characters randomly composed of letters and numbers. For a private key to grant wallet access, it must remain absolutely secret. If it is lost or stolen, no one can access the crypto holdings – or worse: an unauthorised third party takes control.

What is the difference between public and private key?

The public key is public and is used to receive and verify transactions. The private key remains secret and is used to sign transactions and grant access to cryptocurrencies. Both are part of an asymmetric key pair that together ensures security and trust on the blockchain.

When a user initiates a transaction, the wallet generates a digital signature using the private key. This confirms that the sender is authorised to use the relevant tokens or coins. The public key is then used to verify the signature – without revealing the private key.

This division of roles is central to the asymmetric cryptography used in blockchain technology. Only the holder of the private key can authorise transactions, but anyone in the network can use the public key to check if a transaction is genuine. This creates security – even in a decentralised, anonymous environment.

Public and private key encryption ensures that information is accessible only to the intended recipient and that transactions cannot be tampered with. While the keys operate in the background, they enable exactly what cryptocurrencies stand for: control, transparency and security without a central authority.

How are public and private keys created?

A key pair always begins with the private key: it is generated first – as a long, randomly generated string of characters. This randomness is essential, as it makes the key secure and unpredictable. The corresponding public key can then be derived from the private key.

Most cryptocurrencies use a cryptographic method called Elliptic Curve Cryptography (ECC) for this. It is based on the mathematics of elliptic curves and allows a public key to be calculated from a single private key – but not the other way round. This one-way function is a key feature of asymmetric encryption and protects against unauthorised access.

The result is a public-private key pair that is uniquely linked. Even though the keys are mathematically related, the private key cannot be calculated from the public key. In modern wallets, the key pair is automatically generated in the background – for example, when setting up a new wallet, where the private key remains under the user's control.

Example of private key and public key

Both the public key and the private key consist of a complex combination of letters, numbers and symbols. An example of a public key might look like this:

1a3b5c8d9e1f2g3h4i5j6k7l8m9n0o1p2q3r4s5t6u7v8w9x0y1z2a3b4c

The associated private key appears similar at first glance but remains secret. An example of a private key:

5k8x4f2g9d6c3s2v1f0g7h6m5n4b3v2c1x2y3z4a5b6e7d8c9f0e1d2g

Both keys belong together and only work as a pair. The public key is generated from the private key, not vice versa. This means: a transaction signed with the private key can be verified using the public key, but not changed or reversed. It is this exact interaction that makes the method so secure in the blockchain.

Note: the keys shown above are fictional and for illustrative purposes only. In practice, private keys must never be shared or published – they are the only access to the digital assets in a wallet. Public keys, on the other hand, can be freely shared, e.g. to receive transactions.

Where is encryption with public key and private key used?

Asymmetric encryption with public and private keys is used in many digital applications – particularly where security, identity and confidentiality are essential. In the world of cryptocurrencies, it is a central element: with cryptocurrencies like Bitcoin, each transaction is signed with a key pair and documented on the blockchain. This allows the network to ensure that only the authorised holder has control over tokens or coins – without any central authority. Public and private keys are also used to access wallets, especially with self-custodial solutions.

Beyond cryptocurrencies, this type of encryption is also used for digital signatures, secure email transmission (e.g. via PGP) and in SSL certificates – such as to protect website traffic or verify online identities. In all these cases, the asymmetric structure ensures that content is readable only by the intended recipient and cannot be tampered with.

Especially in decentralised systems with anonymous participants, the public key method provides the necessary foundation of trust. It enables clear digital identities and protects data through mathematical security rather than confidential agreements.

Weaknesses in the public and private key method

The security of the public and private key principle depends not only on the encryption method but also on the correct handling of the keys. The greatest weakness lies in the private key – if it is lost or shared, access to one's cryptocurrency is permanently lost. Recovery is not possible in decentralised systems like the blockchain.

Security risks mainly arise from unsecured storage, untrusted devices or phishing attacks. If the private key is stored unencrypted or entered into manipulated apps, third parties may gain access to the wallet and its assets.

The public key can also have vulnerabilities – not through manipulation, but through traceability. Since all transactions on the blockchain are publicly visible, a known public key can be used to analyse activity.

Careful handling of the keys is essential – especially as the private key controls a cryptocurrency and cannot be replaced.

Wallet types and their encryption methods

Choosing the right wallet is essential for the security of your cryptocurrencies – especially regarding the management of private and public keys.

• Hot wallets are connected to the internet and therefore convenient but more vulnerable to online attacks.

• Cold wallets store the private key offline and are better suited for long-term storage.

• Hardware wallets secure the private key on a physical device and offer high security.

• Paper wallets consist of printed public and private keys and require careful physical storage.

Regardless of wallet type, private key encryption remains the central security feature. Only those who possess the corresponding private key can access the related cryptocurrencies. The blockchain ensures that each transaction is clearly authorised and traceable.

Hierarchical deterministic wallets, seed phrase and multi-signature wallets

In addition to traditional wallets, there are specialised solutions that offer added security and flexibility. These include hierarchical deterministic wallets (HD wallets) and multi-signature wallets.

HD wallets are based on a seed phrase – a series of words that serves as the starting point for generating many related keys. From this seed phrase, all relevant private and public keys in a wallet can easily be derived. This not only simplifies recovery but also backup, as one seed phrase is enough to access all wallet addresses.

Multi-signature wallets increase security by requiring multiple private keys to approve a transaction. Only when a defined number of key holders sign will the transaction be executed on the blockchain. This is particularly suitable for groups or companies that want to manage their cryptocurrencies collectively.

Both types of wallets use the public-private key method to clearly authorise transactions. While HD wallets enable structured key management, multi-signature wallets provide protection through distributed responsibility.

Conclusion: Trade cryptocurrencies securely thanks to public and private keys

Understanding public and private keys is essential for trading cryptocurrencies securely. Anyone trading Bitcoin or other cryptocurrencies should master the safe handling of public and private keys. The keys form the basis of security protocols in the crypto space and enable users to protect and control their digital assets. The private and public key method ensures that transactions are authenticated and assets securely stored.

For crypto traders, it makes sense to stay up to date on best security practices and apply them consistently. The world of cryptocurrencies is evolving rapidly, as are the methods to secure your investments. By continuing to educate yourself and using proven methods, you can fully benefit from cryptocurrencies while maintaining a high level of security.

Frequently asked questions about public keys and private keys

We answer the most common questions about public and private keys to give you a detailed insight into this topic.

Is private key encryption secure?

Yes – provided the private key is securely stored. Weaknesses in private key encryption usually result from insecure storage, phishing or sharing the key. If the private key is kept offline and protected from unauthorised access, it offers a very high level of security for managing cryptocurrencies.

Why is public key encryption considered more secure?

Public key encryption is considered more secure because the public key can be shared openly without revealing the private key. Asymmetric encryption makes it possible to encrypt data for a recipient or verify transactions without needing access to the private key. This separation ensures that an attacker cannot gain control over the cryptocurrency simply by accessing the public key. The security lies in the fact that the private key cannot be mathematically derived from the public key.

How can public and private keys be securely stored?

Private keys can be securely stored by saving them in a hardware wallet, creating a secure backup, e.g. on paper or a USB stick, and keeping them in a safe place such as a safe. Strong passwords and two-factor authentication should also be used to protect access.

Further topics around cryptocurrency

Want to deepen your knowledge of cryptocurrencies? Our detailed articles give you the chance to dive further into the world of digital currencies. In the Bitpanda Academy, you'll find a wide range of guides and tutorials offering exciting insights into topics like blockchain technology, crypto trading and safely managing digital assets.

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