Bitcoin is novel and fascinating, but it is also unclear, polarising the general population. Some individuals are ecstatic about its possibilities as a global currency, while others are terrified. Bitcoin naysayers mistrust the cryptocurrency’s security, yet Bitcoin wallets, particularly hardware wallets, are becoming more difficult to hack, and the one-time utilisation Crypto algorithms makes transactions almost untraceable. A Bitcoin address is a one-of-a-kind identifier that may be used to send bitcoin to a virtual place. People may transmit crypto to Bitcoin addresses in the same manner that they send fiat dollars to email addresses.
Digital keys, cryptocurrency addresses, and digital signatures are used to establish ownership of bitcoin. The digital keys are produced and held by consumers in a file, or basic database, known as a wallet, rather than on the network. The cryptographic keys in a user’s wallet are wholly independent of the bitcoin system, and may be produced and maintained by the wallet software without using the blockchain or requiring Internet connectivity. Many of bitcoin’s unique features, including as decentralised trust and authority, ownership verification, and the strong encryption architecture, are made possible through keys.
To be included on the blockchain, every cryptocurrency requires a valid signature, which can only be made with valid digital keys; hence, anybody having a duplicate of those keys has ownership of the coins in that account. A private (mystery) key and a public key are the two halves of a key pair. Consider the public key to be a bank account number, and the private key to be a secret PIN or check signature that gives you power over the account. Users of bitcoin are rarely exposed to these cryptographic keys. They are saved in the wallet file and controlled by an online bitcoin wallet system for the most part.
The recipient’s public key is represented in the payment phase of a bitcoin transaction by its digital fingerprint, known as a bitcoin wallet address, which is used in an identical way as the recipient’s name on a check (i.e., “Pay to the order of”). A btc address is often produced from and correlates to a public key. But, it’s not like all bitcoin addresses represent public keys; as we shall discover later in this chapter, they can also reflect other beneficiaries such as scripts. Bitcoin addresses abstract the receiver of payments in this way, making transaction destinations more flexible, comparable to cheques: a single payment mechanism that may be used to pay into people’s accounts, corporation accounts, invoices, or cash. Because this is the component that needs to be shared with the rest of the world, the bitcoin address is the sole indication of the keys that consumers will see on a regular basis.
Wallets, which carry cryptographic keys, will be discussed in this chapter. We’ll look at the generation, storage, and management of keys. The several encoding styles used to encode private and public keys, domains, and script addresses will be discussed. Finally, we’ll look at some unique key applications, such as signing messages, proving ownership, and creating dummy addresses and paper wallets.