Before investing in any form of cryptocurrency, you must become familiar with the terminology used in the industry. This will prevent mistakes that could jeopardize your entire investment, and no one should be investing in any type of security or asset that they don't fully understand first.
Crypto Wallets
Before we even delve into what public and private keys are, we first need to discuss what the keys are for. Your Bitcoin or crypto wallet is basically the account that you store your cryptocurrencies in after purchase. It is entirely controlled by you, and this level of control means that unfortunately there is no bank customer service representative to run to should you have trouble. This very decentralized nature is exactly what draws many people to cryptocurrency in general.
There are three main types of crypto wallets: exchange wallets, software wallets, and hardware wallets.
Exchange Wallets
These types of wallets are hosted on crypto exchange platforms, and they function in a manner most closely resembling a traditional bank account. The platform will not provide you with the private key to the wallet, and therefore, you truly don't have total control over the crypto that you own. This is the least desirable type of wallet to store your crypto in as it's possible that the exchange may close down or be hacked, but it is necessary in order to easily participate in trading.
Software Wallets
Software wallets are typically installed on a device of the investor's choice. The wallet is hosted online and provides the user with total control over their assets provided that they keep their private key secure.
Hardware Wallets
Hardware wallets are the most secure of the three types as they store the cryptocurrency that they hold entirely offline. Again, this provides the user with total control of their money, and it makes the wallet even less vulnerable to compromise.
Private Versus Public Keys
Your public key is basically the address of your wallet and is similar in use to your bank account number. This is what is needed to receive any sort of payment into your wallet, and it is provided by you to anyone who will be paying you.
Your private key is equivalent to your user name and password on your banking site. This allows you to access your funds and send crypto to others. Private keys are the single most important part of cryptocurrency investing. If you lose your private key, then you have lost your crypto. It can't be recovered, and no one can help you.
It is your responsibility to secure your private key. Whether you write it down and place it in a fire safe or safe deposit box or use an electronic password vault, you absolutely must keep your private key secure and still maintain access to it. The most secure way to store your private key is in any offline manner that you won't lose. This prevents cybersecurity failures from compromising your key inadvertently, and it gives you the freedom to keep your key safe as you see fit.
