Extending the nearly four times rise seen in 2020, bitcoin prices have surged more than 20% to $35,249 in the first 12 days of 2021. The rally has attracted many first-time buyers to cryptocurrencies. However, there are concerns that many of these investors are buying into this asset class without fully understanding how these work and what are the risks involved.
To understand how a cryptocurrency derives its security features, you must first know the concept of public and private keys.
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Bitcoins are stored in digital wallets, which are software programmes, containing one public and one private key. Bitcoin wallets are like an online bank account where you keep your bitcoins.
Corresponding to a wallet is a private key, which is a large and random number. This key works as a password and determines the ownership of the crypto asset. Usually, cryptocurrency wallets generate a private key for users. Owning a cryptocurrency essentially means having a private key.
Remember that you won’t be able to access your bitcoins or other crypto asset if you misplace or forget the private key.
Moreover, as the name suggests, a public key is an address that everyone can see and is used by other people to send crypto assets to you. Note that a public key can be recovered using a private key.
It is important to select right wallet to store bitcoins, as this will ensure that your crypto assets are secured. That there are two kinds of wallets; hot wallets, which are connected to the internet and cold wallets, which let you store crypto assets offline, including hardware and paper wallets.
Industry experts suggest that investors should hold crypto assets’ private keys in cold storages. However, hot wallets also have their advantage as they provide easy accessibility.