Bitcoin & Cryptology
Let’s explore some more about the Seed and the pairing of Private Keys, Public Keys and Bitcoin Addresses. Our Electrum Wallet was generated using some random words called the Seed. But what exactly is this Seed, and what does it do? At the heart of Bitcoin is advanced Cryptology software that is used to encrypt and decrypt Bitcoin Wallets and Bitcoin Transactions. When you first create your Wallet, the Seed is picked up by the Wallet’s advanced Cryptology software to generate a number of unique items. The random words and letter placement in the seed is used by the encryption algorithms, to create encryption patterns and Keys that are unique to your Wallet.
First, your Wallet’s main datafile, which stores details of your Bitcoin transactions is created and encrypted. As the Blockchain Public Ledger holds details of every single Bitcoin Transaction ever made, all transactions from your Wallet will also exist in the Blockchain Public Ledger. Next, matching pairs of Private Keys and Public Keys will be created, along with some unique Bitcoin Addresses that are matched to these keys. You need a supply of Bitcoin Addresses in order to send or receive Bitcoin into your Wallet. And every Wallet can create an unlimited number of unique Addresses.
Private Keys and Public Keys
Each Bitcoin Address is directly linked to a pair of matching keys, the Private Key, and the Public Key. The “Private Key”, must remain securely on your own Wallet, as it is used to encrypt and authorize transactions leaving your Wallet. Never, for any reason show anyone what your Private Keys are, as this makes your Wallet vulnerable to cyber-crime and potential theft. If anyone found out what your Private Keys were, they could potentially steal Bitcoins from your Wallet, in much the same way that they could if they stole your Seed. The other Key is the Public Key. This matches up with your Private Key, to form a matching pair, a bit like non-identical twins.
Next we have the Bitcoin Address itself. Every Bitcoin Transaction you make from your Wallet generally uses a completely new and unique Bitcoin Address, which helps retain your anonymity and protects your wallet. The Bitcoin address is a mathematically related shortened version of your Public Key, created using a technique called hashing. So in summary, a bitcoin address is a mathematically related and shortened version of your public key, which itself is mathematically related to your much larger and more complex Private key. Your Private Key creates your Public Keys, authorizes transactions leaving your Wallet, and proves ownership of your transactions. I did mention Bitcoin was complicated, didn’t I?
When Bitcoin transactions are decrypted by the Miners, for inclusion into the Blockchain Public Ledger, the included Public Key and Bitcoin Addresses identifies the transaction as either coming from your Wallet, or being sent to your Wallet. You can view your Private Keys inside your Wallet, but you don’t need to worry about them too much for day-to-day use. The pairing of public and private keys, when transacting in Bitcoin, is handled automatically by your Wallet. If you want to learn more about the Seed, Bitcoin Addresses, and Public or Private Keys, check the Webpage for this episode and follow the links to more reading.