Keys, addresses and what you actually own

Lesson 3 of 5

By the end of this lesson you’ll know what you actually own when you own crypto, and why a list of twelve words can be worth more than everything else in your house.

A collage of a giant blue wooden puppet standing in an old town square with people looking up at it, its strings running to one small man on a rooftop who holds the control bar.

What you actually own

Lesson 1 said the record is public and shared. Follow that through: your bitcoin don’t sit on your phone or inside a device.

They’re entries on the blockchain, assigned to an address. What you hold is the ability to move them, and that ability is a secret number called a private key.

Bitcoin’s white paper defines a coin as “a chain of digital signatures.” Each time coins move, the owner signs the transfer with their private key, and every node can check the signature against the public half of the key without ever seeing the secret.

A signature is proof you own the coins, and a signature is all it takes to spend them.

Apps will ask you to sign things too, and one signature, such as a token approval, a permit or a blind signature you can’t read, can hand your tokens to someone else, so never sign anything you don’t understand. Your First Wallet, Set Up Safely shows what you’re signing.

Private key, public key, address

The private key is a very large random number, made by your wallet software when you set it up. Ethereum’s documentation says a private key “grants you custody over the funds associated with your account,” and adds: “It is vital to keep your private keys safe.”

The public key is calculated from the private key. The calculation works one way only. Anyone can use the public key to check a signature, and nobody can work backward from it to the private key.

The address is a shortened form of the public key, and it’s the thing you give to people who want to pay you. On Ethereum it’s the last 20 bytes of a hash of the public key, written with “0x” in front. Bitcoin’s format looks different, but the idea is the same.

Four boxes stepping down the page, joined by arrows marked one way: recovery phrase, private key, public key, address. The top two are in rust and marked You alone; the bottom two are in blue and marked Anyone.

Each step is made from the one above, and the arrows run one way. Who should see it is in color.

Recovery phrase: Your keys, written as words. You alone, on paper or metal; never typed into a website, an app or a computer.

Private key: The secret that signs payments. You, and nobody else, ever.

Public key: Made from the private key; checks signatures. Anyone, it’s harmless.

Address: A short form of the public key. Anyone who wants to pay you.

Sharing an address is safe. Sharing a private key is handing over the coins.

And when you pay someone, you compare every character with the address they gave you, and you never copy one from your transaction history. Thieves make look-alike addresses that match the first and last few characters of a real one, and Your First Wallet, Set Up Safely shows how to check before you send.

Keys, addresses and what you actually own

What you actually own

Private key, public key, address

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