Bitcoin Address

The Bitcoin Address is basically a code or unique identifier that you can share with others to receive BTC. It is derived from the public key and its the address that others will see when they try to send you the BTC. It is completely safe to share your address to others. Its similar to the email address that we share with others to receive email from them. The bitcoin address is 27-34 alphanumeric characters in length and is generated by the public key. When someone says they have Bitcoin, what they actually mean is they have the private key which proves the ownership of the public key which is the address in the blockchain that contains the record of amount of Bitcoin. Hence the expression, “Not your keys, not your coin”.

Public Key Cryptography

Bitcoin uses Public Key Cryptography(PKC) technology to operate, which is being used from the 1980’s, way before the creation of Bitcoin. There are various algorithms used for Public Key Cryptography according to its purpose. PKC is a kind of encrpytion where there is a pair of keys, private key and public key which are used in data encryption and decryption. The public key is the one which can be shared with others and the private key should be kept secret by the owner. PKC was first used primarily to encrypt and decrypt messages in traditional computing. Bitcoin uses this technology to encrypt and decrypt transactions. The use of PKC is to enable private communication secure using digital signatures in a public channel. PKC basically uses a one-way mathematical concept called a Trapdoor function, which are mathematics problems that are easy to compute in one direction but almost impossible to reverse so that validating the authenticity is easy and forging transaction is imopssible.

Public Key

Public Key is a cryptographic code that is paired to its private key. As the name suggests, it is public and can be seen by anyone and anyone can send transactions to this key. But only the one with its private key can access the BTC in it and prove that he is the owner of the BTC. Bitcoin address is usually the hashed version of the public key. It can be compared to someones house address. Anyone can reach the house from its address, but only the owner with the keys can enter.

In the image above, Sumit encrypted the message or transaction using Satoshi’s public key and its only Satoshi that can decrypt the message as it can only be decrypted by Satoshi’s private key.

Private Key

As oppose to the public key, private key is not what you share with everyone. It should be a secret and private to the owner as its name suggests. This is like the key to your house and only you should have the access to the key. The private key unlocks the access right for its owner to spend the BTC in his public key or bitcoin address. As stated earlier, you actually dont literally own the BTC itself. But you own the private key to access the address where the BTC is recorded. There is only one private key to your account which acts as your private password only you should know and have access to. This is the reason you should never, in any circumstances should share your private key with anyone. Private key is what gives you ability to prove ownership or spend BTC in your public address. This key is astronomically large number and is used to generate the public address. Any number of public addresses can be generated from the private key but generating private key from public key is practically impossible.

Signing Transaction or sending a BTC

Unlike banks and government, there is no need for trust in the third parties in Bitcoin network. In most cases, they are not trust worthy anyway. Bitcoin is called trustless system because there is no need of trust as the transaction can be verified. As in the image above, it can be verified using Sumit’s public key that the transaction/message being sent to Satoshi is actually true and unforged and actually signed by Sumit’s private key.

I highly recommend the book “Bitcoin: Hard Money you cant F*** with” if you want to learn more on why Bitcoin is a trustless system.

When sending a BTC, a transaction is encrypted using a public key which is possible to get decrypted only by the accompanying private key. The transaction is actually digitally signed by the private key which then can be verified by the public key that the transaction hasn’t been modified. This way you can digitally sign a transaction to prove that you are the actual owner of the fund. The nodes in Bitcoin Blockchain check and authenticate transactions automatically and the forged transactions are rejected by the network. Once the authenticated transaction are on the blockchain, it can’t be reversed.

Thank you for reading. Hope you enjoyed it. See you next time.