How do private keys and wallets/transactions work?

Bitcoin Talk and Cryptocurrencies
1

I’ve been reading about how ownership and transactions work in crypto. What I understand is crypto currency, lets say BTC is accessed with a cryptographic key. Each blochain works differently, so you can’t access ether with the same cryptographic key as you use to access your btc.

But you can’t use your cryptographic key without an application which is designed to manipulate (send commands) to the cryptographic key. These apps are called wallets.

I’m not sure what is correct now, but is the key which is called the private key, a different key than the cryptographic key mentioned earlier? Does the wallet have its own key, and BTC have its own key?

The cryptograhic key is to access the BTC, while the private key is to access the wallet which stores the cryptograhic key(s)?

Lets make an example:
I have money on an exchange (custodial wallet).
I want to transfer it indirectly (ask exchange to transfer it) to my own non-custodial wallet.
So, first I have to create my wallet.
The wallet will give me a private key when I create it. I still have no currencies in the wallet. It is basically only a private key to nothing. The non-custodial wallet allows you to have multiple crypto currencies, so first I need to create a wallet inside my wallet for the currency I want. Is that technically correct (a wallet inside a wallet)?
The first wallet is just a private key used to access a cryptographic key for the bitcoin blockchain.
The first wallet can also create other cryptographic keys for other blockchains.
So now you have a private key (wallet) which cointains sub wallets (cryptographic keys) for different blockchains. And each of these cryptographic keys have an address, which is where I would tell the exchange to send my currency.

Wallets have a standard they should be built by. This ensures for example that the private key (the key to the wallet, not the keys to the currencies) is random, and if you wanted to change to a new wallet, you can enter the private key into the new wallet (different wallet provider) and it will work as it should, as long as the new wallet supports all the currencies you own.

But, how does the new wallet provider know what the cryptographic keys are for each of your currencies? Because when you created the wallet and received the private key, you hadn’t created the sub wallets yet.

I see many people writing that the wallet is only used to interact and access your currency, but the currency isn’t in the wallet. The wallet just allows you to access the currency.

I’ve also seen it written before that all the different blockchain currencies are part of the wallet private key. Meaning there are no sub cryptographic keys for each currency. It’s only the one and only private key for the wallet. That’s why you can easily change wallet provider/app.

But because every blockchain functions differently, how can only one private key aka cryptograhic key be used to access multiple currencies from different blockchains?

2

I will try to explain this by comparison to something you will be familiar with. Of course, I am no expert, but I have had exposure to cryptos for the past 18 months on 4 exchange accounts and two off-line.

I encourage others to question my logic, since it may be a good way to learn, and I would feel a lot better being told I am full of s__t than misleading forum members.

Here we go.

Public cryptographic key and private cryptographic key.

This article has a lot of detail, but is useful as a reference for the general subject of cryptography, not specific to crypto-currencies but more generally applicable to encryption and decryption of information.

https://www.tutorialspoint.com/difference-between-private-key-and-public-key

The private key is what it says on the tin. It is like the PIN on your debit card. Anyone who holds both your debit card AND your PIN can take money from your account. So guard it with your life.

Now the “wallet” is a bit of a distraction. At the most basic level, you can reconstitute your private key (and hence access to your crypto funds) by knowing your seed phrase. A seed phrase is a list of 24 words written in a particular order that allows you access to your funds. Think of your seed phrase as a £10 note that can be used to purchase goods or services if you have it to hand. The wallet in which you place your £10 note (and other GBP notes) is only a vessel of convenience. If you want to store 1,000 x £10 notes it is unlikely you will wander around in public with £10K in your hip wallet, so you choose another type of wallet called a “safe” or locked vessel.

Importantly and with respect to today’s access practices, access to the true owner of an asset relies on something you HAVE and something you KNOW. In the debit card example, you HAVE the card to hand, that you stick in the machine, but you can only draw fiat notes (£10 notes) from the ATM when you have entered the PIN (something that you KNOW).

Modern, two factor authentication is based on this principle. You HAVE the mobile phone to which an authentication key is sent for confirmation that it is you, and you KNOW the account that you have accessed in order to withdraw funds (your bank account application on your mobile or laptop).

The public key part is what you send to someone else so they know how to send funds to you. If you want someone to transfer money to your bank account, you need to give them your bank sort code, account number and (in most cases) your account name. They can send you money (you gave them your public key consisting of a/c name, a/c #, sort code), but they cannot withdraw money from your bank account.

Likewise, if I wished to transfer some BTC to your crypto account, I would need to ask you for your public key in order to send that money.

Each crypto-currency (BTC, ETH, XRP, ADA, etc) has its own blockchain protocol and so you cannot send your BTC funds to an ETH account of a recipient. You need to have ETH in your own account, and the recipient needs to send you their public ETH key in order for you to send them some ETH tokens or currency.

I hope that has explained by comparison with debit card and PIN.

3

I was wondering the same. Here’s some cyrpto-specific help info from Ledger. The pictures helped me.

4

Hello there,

Thanks for sharing these insights mate as the link you provided which clearly explain the difference between private key and public key.

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