Blockchains are not new but are essential for authenticating transaction authors without the need of a trusted third party.
The cornerstone of any good crypto wallet lies in what are known as private and public keys. Securely sending and receiving assets is possible thanks to keys! This technique has been used since the 70s, notably thanks to Public Key Cryptography (PKC) technology. This cryptographic technology makes it possible to create a key pair: one will be public and the other, private. These two keys are linked together, which allows a recipient to verify the signature of a private key using the public key.
Your public key is a cryptographic code that you share publicly to receive assets in your wallet. It takes the form of a character sequence (human-readable or not) that anyone will be able to see by looking for it in a block explorer.
Your private key takes the form of a series of non ‘human-readable’ characters and can be password protected. It has dual utilization: allowing for the issuing of funds, but also their import into a new wallet. For these reasons, it is essential to keep your private keys as secret as possible from prying eyes.
Your public key can be shared publicly, your private key shouldn’t!
In addition to the private key, there may be another way to recover your funds: the seed phrase. This series of 12 or 24 words has the advantage of being secure (the last word is generated randomly based on all the preceding ones) and more easily stored than a private key.
The process which encrypts a signature can be independent of the blockchain and the Internet. As long as the public key is known it is possible to recognize whether it is the key that digitally signed an action (messages , documents, transaction).
On the blockchain, the role of the Public Key Cryptography (PKC) is to ensure that only the assumed legitimate owner of the funds is able to sign a transaction. For example, if Craig Wright (founder of the Bitcoin Satoshi Vision – BSV – blockchain) were really Satoshi Nakamoto, he would be able to digitally sign a message using his private keys from the wallet of the person behind Bitcoin.
Thanks to Web3 and decentralized applications (Dapps), online authentication has become popular in the crypto space! All you need is a simple browser plugin like Metamask, the link between the public key and the private key can be proven and allow access to the desired site.
Thanks to this digital signature, even if the access to the account by username and password was compromised, the third party could not move the funds in the wallet.
Another use of signatures is the ‘multi-signature’ (or ‘multisig’). This method allows you to have a required number of signatures from several private keys before the information is verified.
For example, most exchanges occur via cold-held crypto wallets, and the only way to send funds is to have multiple trusted people authorize a transaction.
This method is one of the most secure methods to secure the contents of a wallet, but its strength is also a weakness: if one of the required parties is unable to sign (deceased, in prison) it would be impossible to send funds!