Crypto Wallet Terminology

For beginners, terms like private keys and seed phrases might seem confusing. However, understanding them is crucial for managing a cryptocurrency wallet effectively. Let’s break it down in the simplest way possible.
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Imagine your crypto wallet as a house. Every house has an address and a key to unlock the front door. A crypto wallet functions in a similar way – it has a wallet address, a public key, and a private key.
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If someone wants to send a letter to your house, they need your home address. Similarly, if someone wants to send cryptocurrency to your wallet, they need your public key.
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Meanwhile, your private key is like the key to your front door: only you should have access to it.
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In this lesson, we will explore important crypto wallet terms, including public and private keys, wallet addresses, and seed phrases.

Contents

• What are public and private keys?
• What is a wallet address?
• What is a seed phrase?

What Are Public and Private Keys?

Your crypto wallet consists of two essential keys: a public key and a private key. Let’s compare this to a bank account.
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• The public key is like a bank account number—you can share it with others to receive funds.
• The private key is like a PIN or security code—it should be kept secret and never shared with anyone.

Public Key

A public key is a cryptographic code that allows users to receive funds, but it cannot be used to authorize sending them. It is a long string of alphanumeric characters used to encrypt data securely.
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Unlike traditional public key infrastructure (PKI) systems, in blockchain technology public keys are broadcast on the network or revealed during transactions, not stored on centralized PKI servers. You can freely share your public key to receive cryptocurrency.

Private Key

A private key is also a long alphanumeric string that acts as a password for your crypto wallet. It is used for signing transactions and decrypting data to authenticate that you are the rightful owner of the funds.
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• The private key is crucial for accessing your crypto funds.
• If you lose your private key, you lose access to your crypto wallet permanently.

The Relationship Between Public and Private Keys

Public and private keys are mathematically linked but function in a one-way relationship.
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• A private key can generate a public key, but a public key cannot be used to generate a private key.
• When a public key encrypts data, the private key decrypts it.

This asymmetric encryption system ensures that your crypto holdings remain secure by allowing secure verification without exposing the private key.

What Is a Wallet Address?

At first glance, a wallet address and a public key might seem similar since both can be shared to receive cryptocurrency. However, they are not the same.

Wallet Address Explained

A crypto wallet address is a unique alphanumeric identifier generated from the public key.
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• It is a shorter version of the public key, making it easier to share and use for transactions.
• Like a public key, you can share your wallet address freely to receive funds.
• However, since wallet addresses are derived from public keys, they cannot be reversed to obtain the original public key.

Think of your wallet address as a username that others can use to send you funds, while the public key is a longer, more complex identifier used in the background.

What Is a Seed Phrase?

Manually entering a long private key every time you need to access your crypto funds can be inconvenient. To simplify this, a human-readable format was introduced: the seed phrase.

Understanding a Seed Phrase

A seed phrase is a set of 12 to 24 randomly generated words that act as a master password for your crypto wallet.
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• It is used to recover access to your wallet if you lose access to your private key.
• As long as you have the seed phrase, you can restore your wallet and reclaim all stored funds.
• If you lose both your seed phrase and private key, your crypto assets are permanently lost.

When setting up a crypto wallet, you are usually required to back up your seed phrase. Just like a private key, your seed phrase must remain private.

Other Names for a Seed Phrase

A seed phrase is also known as:
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• Mnemonic phrase
• Backup phrase
• Recovery phrase
• Seed words

Since the seed phrase generates the private key, keeping it safe is the most important step in securing your funds.

Example of a Seed Phrase

Here’s what a randomly generated seed phrase might look like:
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Sunset-Tiger-Mountain-Coffee-Rocket-Dream-Olive-Window-River-Music-Cactus-Silver
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• The seed phrase creates the private key.
• The private key generates the public key.
• The public key produces the wallet address.

Each step follows a one-way process, meaning you cannot reverse-engineer a seed phrase from a wallet address.

Conclusion

We hope this lesson has clarified key crypto wallet terms. Understanding public and private keys, wallet addresses, and seed phrases is very important for securely managing your digital assets.

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