Ownership of bitcoins is determined by the number of keys, bitcoin addresses, and digital signatures. Digital keys are not stored in the network, but are created by users and stored in files or simple databases called wallets. The digital keys in the user’s wallet are completely independent of the Bitcoin protocol and can be created and managed by the user’s wallet software without the need for a cryptocurrency master key or the Internet. Keys include many of Bitcoin’s most interesting features, including centralized trust and control, property verification, and a cryptographic proof security model.
Every Bitcoin transaction requires a signature, which must be entered into the blockchain, and this can be done using the correct number of keys. Therefore, anyone with a copy of these keys can manage the bitcoins in this account. A key consists of a pair of private (secret) keys and a public key. Think of the public key as a bank account number and the private key as a secret PIN, or sign account management checks. Bitcoin users rarely see these digital keys. In most cases, they are stored in wallet files and managed by the Bitcoin wallet program.
In the payment portion of a most expensive cryptocurrency, the recipient’s public key is represented by a digital fingerprint, called a Bitcoin address, and is used as the beneficiary’s name (i.e. “payment for the order”). In most cases, a Bitcoin address consists of and corresponds to a public key. However, not all Bitcoin addresses display the public key. They can also point to other beneficiaries, such as scripts, as we’ll see later in this section. In this way, the Bitcoin address summarizes the recipient’s address, making paper transactions more flexible, such as a paper check: a payment instrument used to pay a person, to pay a company account, to pay a payment, or to make a cash payment. A Bitcoin address is the only reflection of a key that users will typically see because they have to share the world.
In this section, we will provide you with a wallet with an encryption key. We will see how to prepare, store and organize keys. Let’s look at different encoding formats for specifying private and public keys, addresses and script addresses. Finally, we’ll look at the special uses of keys: signing messages, verifying households, creating invalid addresses and paper bags.
Public Key Cryptography and Cryptocurrencies
Invented in the 1970s, public key cryptography is the mathematical foundation of computer and information security.
Since the invention of public key cryptography, many mathematical functions such as the expansion of prime numbers and the multiplication of elliptic lines have been used. These mathematical functions are almost irreversible, easy to calculate in one direction and impossible in the opposite direction. Based on these mathematical functions, cryptography allows the creation of digital secrets and memorable digital signatures. Bitcoin uses the multiplication of elliptic lines as the basis for public-key encryption.
In Bitcoin, we use public key cryptography to create key pairs that control access to Bitcoin. A key pair consists of a private key and is derived from a unique public key. The public key is used to acquire bitcoins, and the private key is used to sign bitcoin transactions.
There is a mathematical link between public and private keys, allowing private keys to be used in messages. This signature can be checked against the public key without revealing the private key.
When spending bitcoins, the current bitcoin owner provides their own public key and signature in the transaction to make the bitcoin transaction (always made with a different but same private key). By providing a public key and a signature, anyone on the Bitcoin network can confirm the transaction, confirming that the person who copied the Bitcoin is the owner.