How public and private keys work? What is a seed phrase?

How public and private keys work? What is a seed phrase?

Blockchain keys in a nutshell

Imagine your Crypto Wallet as your home. Every home has a home address and a key to unlock the door of that home.

Well, your crypto wallet address is not that different from your home. Your public key is your home address. For example, if you have friends around the world and they send you a postcard, they need to know your address so the postcard arrives at your door. The same idea applies to your public key. Your public key is the deposit address in which you will receive your crypto transfers.

The private key will represent the key to unlock the door of your home. This key is a code in which you can and ONLY you should have access to, as this key gives you the rights to access all the funds contained therein.

The seed phrase is a way we encrypt the private key. The seed phrase is written in English rather than the 64 characters string in the range 0-9 or A-F alternative. It is a way to easily understand and remember the 12 secret words that can open the door of your home.

The seed phrase represents your private key but this key was encrypted and transformed into a readable format. Nevertheless, we must be extremely cautious with seed phrase as it is the key to our home and everything inside it.

Blockchain keys for geeks

Cryptocurrencies are built on a public-key cryptographic system that uses a pair of keys.

  • Public keys: known to the public and is essential for identification. This address can only receive digital assets.
  • Private keys: these are secret keys used for authentication and encryption. This address signs transactions and grants access to users funds.

The creation process of any crypto wallet starts with the creation of the private key. The public address can be derived from the public key; while the public key can be generated from the private key using an algorithm.

It is not possible to find the public key from the public address, just as not possible to find the private key from the public key. This makes the public-key cryptographic system very secure.

The private key is what grants ownership over the funds on a wallet address. When sending transactions in the blockchain, the software automatically signs the transaction with your private key without compromising it to the public and at the same time, authenticating your transaction to the network and proving that you control the key. You must not share your private key to third-parties to avoid granting them access to your funds.

The seed of any wallet, normally known as the 12 secret or seed words, is just a mnemonic phrase generated from the private key of your wallet. These 12 seed words allow you to regain access to your wallet even after losing your credentials (i.e user ID, password).

If you like this blog post, please share it on social media and sign up to start trading!

Comments 0

Latest from Lykke.

Subscribe to our newsletter for the latest news, industry insights and product updates straight to your inbox.

Crypto exchange with 0 fees: a level playing field

Lykke Wallet is a blockchain-powered commission-free platform for cryptocurrency trading and forex, on which all exchange operations are executed without fee. At Lykke Wallet, users can trade with zero fee some 50+ cryptocurrencies including Bitcoin and 20+ forex pairs starting from as low as a 1 euro deposit. The 0 crypto fee policy is valid both for retail or corporate and API traders, who can take advantage of the zero taker and maker fees to execute their trading strategies. The very fact that Lykke Wallet is a free cryptocurrency trading platform, makes it different from the majority of other crypto exchanges with lowest fees. Indeed, we consider that the 0 trading fees are an important step in democratizing finance through blockchain and here’s a number of reasons why.

Continue reading

How to buy Cryptocurrency with Swiss Francs (and without Fees)

Are you wondering where and how to buy cryptocurrencies with Swiss francs with as low fees as possible? In this article, we will explain to you how to buy Bitcoin and other top crypto currencies directly with CHF and with no trading fees at Lykke Wallet.

Continue reading

Picking Richard’s brain

Richard is a pioneer in high-frequency finance. With Lykke, he pursues his ambition to transform financial markets into a seamless ecosystem resolving the inefficiencies of the current financial system. 

In the first segment of this short interview, Richard shares with us his views on financial markets’ fairness, the key factors for success in trading and API trading.

Continue reading

Algorithmic Trading

Do you trade with a plan? How many times have you gone back on your trading plan? Was it worth it? Well.. perhaps it is time you go full on with API trading. Continue reading while we digest some of the common issues and address some of the benefits of setting up your trading bot with Lykke.

Continue reading

How decentralized is the Bitcoin network nowadays?

Do you like Bitcoin because of its decentralized authority structure? Or perhaps you are interested in conspiracy theories? Well, in any case, take a big breath while we dive into one of the most interesting topics surrounding the Bitcoin network where we try to answer how decentralized is the network nowadays and what led us to this point.

Continue reading