One of the characteristics of web3 is transparency. Blockchain operations are viewed by all web3 members. While dealing with sensitive financial data one requires to be anonymous. But how can one perform transactions on the blockchain and stay anonymous at the same time? 

The answer is quite simple - every single action on the blockchain is encrypted. Cryptography or encryption is the process of applying secret codes to encrypt financial operations and confirm the authenticity of crypto wallet owners. 

Just to understand how important it is, check the latest report on scams and fraud in web3. There is no doubt that the figures will rise significantly if there is no encryption. And the participants of blockchain operations can be easily targeted. 

Of course, not many of us can apply extremely difficult mathematical equations to make encryption work, we have it done for us. Anyway, understanding how crypto wallet’s public and private keys work is vital.

How are public and private keys generated?

In a combination: ‘private-public keys’ the heart of the pair is the private key. The public key is generated based on the private key, while both these keys are generated only once when you set up your crypto wallets for the first time. 

Crypto wallet blockchain address (public address) looks like a long combination of random numbers and letters.

It’s the first thing you see when you open your crypto wallet. Also, for convenience, these lines of randomly generated figures are displayed as QR codes. By scanning one of them, you are redirected to the crypto wallet. 

In very simple terms public and private keys could be compared to emails and passwords. While you freely give your email address to anyone, you never share the password, right? Absolutely the same applies to crypto wallets: imagine that the email address is your public key and the password to your email is your private key. 

While a public key is called a blockchain address of your crypto wallet and can be easily shared across the blockchain, your private key MUST be kept secret!

The private key is used to verify your transaction by signing it. Because the public key is generated based on the private key with the help of encryption, the blockchain has to verify that the pair is genuine. If the transaction passes verification, it’s confirmed and is written into the blockchain.

Keeping your private key safe

One more important thing you should know about the crypto wallet keys is that there is no reset button. Once the keys are generated they cannot be re-generated again in case they are lost or stolen. The seed phrase, aka your private key secret string of words, is unique and can be generated only once! This is why you have to be super careful and keep it safe.

Custodial Services

If you lose your private key, you have no access to your funds. That’s why there are multiple services online: crypto wallets and crypto exchanges. They store users’ private keys on their side and apply them if required. Such services are called custodial.

Pluses and Minuses of Custodial Services

On the one hand, private key custody is convenient, because you don’t have to wreck your head and stress out while operating a crypto wallet or trading at crypto exchanges. The interface of custodial wallets is straightforward, similar to a banking app or a digital wallet. You only have to press the button to send funds, buy, or sell. No extra manipulations are required. 

On the other hand, no matter how secure your private keys are with the service they are still prone to hacker attacks or any other technical malfunctions. Once a custodial gets hacked and users’ private keys are stolen, you lose access to your assets forever. ‘Not your key, not your crypto’ they say and that’s exactly the case. Just to understand the scale of the problem, read about the largest cryptocurrency hacks. 

Also, one more thing about centralized custodial crypto services is that knowing that they owe your private keys, they can introduce various regulations, in a similar way banks do. These could be account restrictions, increased withdrawal fees, etc. 

Self-custody, where security meets convenience

Luckily there is another way to operate your crypto wallets - self-custody. Self-custody is a middle way that takes the best practices from custodial and non-custodial worlds and provides users with safe wallets, full ownership of their private key, and convenience of operation. Keep tuned to our news and we will discuss more of what self-custody is and what’s the role of Secured Multi-Party Computation (MPC) in it.

Spatium crypto wallet which is self-custodial is free for everyone. We make sure that your digital assets are securely protected and that there is no friction while using our wallet app. Download, try it, and enjoy making financial decisions independently, irrespective of banks and other financial institutions. 

Self-Custodial & Feeless Wallet from Spatium 

Spatium Wallet is a multi-currency wallet that works with Bitcoin blockchain as well. Our  wallet is making crypto swaps available to everyone through lowering commissions due to the feeless feature, and minimizing the number of intermediaries. Check out wallet website for more information and stay tuned! 

Try Spatium Feeless Bitcoin Wallet and the feature allowing you to pay network fee in currency you send instead of native chain tokens (currently available for USDC on Ethereum. More chains and tokens will be added soon).