There are many terms associated with cryptocurrency that are important to learn. A Bitcoin address, private key, public key, and passphrase are probably terms that you are familiar with if you have any experience with digital currency. For those who are new to Bitcoin here is an explanation of each of these terms and how they relate to sending, receiving, and spending Bitcoin.
Bitcoin addresses are unique identifiers that are expressed in a random series of numbers and digits. They can look like this:
You most likely have an email address which can receive emails. This address is unique so that senders can make sure their email reaches the proper person. A Bitcoin address is similar in that there is no other address like it. It can be used to receive Bitcoin from others.
You will often see the Bitcoin address represented as a QR code. This is done so that the address can be read by mobile phones and so that owners of an address don’t have to send the entire alphanumeric address to someone.
Bitcoin Private Key
A Bitcoin private key is very important to the function of a Bitcoin wallet. It is this key which allows you to spend your Bitcoin or send them to others. All Bitcoin wallets have one or more private keys. These are saved in the wallet file and relate to all addresses that have been generated for the wallet.
A private key for Bitcoin by necessity must remain secret at all times. If you were to reveal the private key of your wallet to someone else then that would be giving them access to all the coins that are secured by the key. It is also important that you back up the private key in the same way that you would back up a passphrase. If you lose the private key and the seed to recover your wallet, the Bitcoin you own are gone forever.
One of the best ways to describe the private key is to compare it to a mailbox that you might rent from the post office. That mailbox provides you with an address. People can send mail to that address. You are given a key that unlocks the mailbox so that you can collect the mail. No one else has that key. You are the only one that can open your mailbox. This is essentially the same function that a Bitcoin private key performs.
A Bitcoin private key is used for making irreversible transactions. There are digital signatures that are linked to each transaction, and these signatures are unique. It is impossible to copy these signatures. Therefore, it is possible to use a private key over and over again.
Bitcoin Public Key
A Bitcoin public key or public address is a series of numbers and letters that allows someone to send Bitcoin to you. It is the way in which you receive Bitcoin. To continue the earlier analogy of the mailbox, the public key is like the address of your PO box. Anyone can have that and send mail to it. You must have the private key to unlock the mail box and retrieve its contents.
A public key is derived from a private key in a complex manner which involves cryptographic mathematical functions. This makes it impossible to reverse engineer the identity of a private key just by using the public key.
Unlike the Bitcoin private key, you can give the public key to anyone you like for the purpose of receiving Bitcoin.
A Bitcoin passphrase is sometimes referred to as a seed. This is a collection of randomly generated words which may look like the following:
soap slow uncle mountain dull sun politician desert fifty certain bar shoot
A passphrase or recovery seed is used for the process of generating and recovering a cryptocurrency wallet. For example, if you purchase a hardware wallet like the Trezor or Nano you will be provided with a recovery seed. This seed will allow you to recover the contents of the wallet if you lose it or if the wallet becomes damaged.
Desktop wallets like Electrum also ask you to generate a recovery seed or 12-word passphrase. You are also asked to back up the passphrase in a secure manner. If you happen to lose access to the Electrum wallet you can regain it by providing the passphrase.
A word should be said here about protecting passphrases. It is vitally important that you write down the passphrase and keep it in a secure location. Some people even choose to let someone else, or several people, keep their passphrase. They may even split the passphrase among two or three people so that no one person has all the words. You must know that losing your passphrase means that your Bitcoin wallet cannot be recovered.
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You now have a basic understanding of four basic terms that you will encounter often when you are using a cryptocurrency wallet. These are only the tip of the iceberg when it comes to learning about Bitcoin, but they are a good place to start. These four terms each describe a vital part of the way Bitcoin is received and spent. It is much the same for all other digital tokens.