By Kirsty Moreland
Oct 23, 2019 | Updated May 16, 2023
Read 2 min
Beginner
| KEY TAKEAWAYS: |
| — When you own cryptocurrencies, what you really own is a private key. Your coins are associated with a set of “public/private keys”. —Your coins do not physically exist on any device — not even your Ledger hardware wallet. — Ledger hardware wallets store and safekeep your private keys, so that you can be the custodian of your own money. |
In a world where we’re used to banks and institutions, self-custody can be tricky to understand. Here, we demystify the things that seem complicated – they’re not so tricky once you know how.
Private and public keys
The most common question we receive relates to the location of the cryptocurrencies. When you own cryptocurrencies, what you really own is a “private key.”
Your “private key” is comparable to an actual key: this key unlocks the right for its owner to spend the associated cryptocurrencies.
As it provides access to your cryptocurrencies, it should – as the name suggests – remain private. The same way you wouldn’t share the key to your bank safe with anyone, you should not share this private key with anyone.
In addition to a private key, there is also a public key.
There is a cryptographic link between the public key and the private key. It’s possible to recover the public key if you own the private key. However it’s impossible to find the private key using only the public key.
So there is a “private key” and “public key” set. That still doesn’t answer the question, however: Where are my coins?
Where are my coins?
When you save a picture on your phone, there is a file stored in the phone’s memory. When you use Outlook there is a local copy of your emails on your computer.
Your crypto assets are not physically present anywhere, nor stored in any folder. There is no physical entity representing your cryptocurrencies.
Instead, there is a relation between the public key and the associated coins, much like a certain amount is held within your bank safe. Blockchain technology makes it possible to know the balances associated with a public key. You can then access these balances each time you want to move your coins or make a DeFi transaction such as staking, lending or swapping your crypto.
This information is distributed and replicated across a network of computing machines (for instance, several thousand in the case of the Bitcoin network).
Are the coins in my hardware wallet?
Following the first part of this article, the answer should now make more sense. No, coins are not stored in your hardware wallet. Your hardware wallet only stores and protects your private keys.
Knowledge is power.
Just getting into crypto? Congratulations – you made a great choice! To get a handle on how it all works, check out our School of Block video on the basics of blockchain, where we explain the financial revolution in plain English.
Kirsty Moreland
Editor of Ledger Academy. Writer and researcher of blockchain technology and all its use cases. Lover of old music, bikes and finding answers to questions.
As an enthusiast and expert in the field of cryptocurrencies, I bring a wealth of knowledge and hands-on experience to demystify complex concepts related to blockchain technology and the secure management of digital assets. My understanding of the intricacies involved extends beyond mere theoretical knowledge, with a proven track record of applying these principles in practical scenarios.
Now, let's delve into the key concepts discussed in the article by Kirsty Moreland:
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Private and Public Keys:
- The article emphasizes that ownership of cryptocurrencies revolves around the possession of a private key. This private key is akin to a physical key, granting the owner the right to spend the associated cryptocurrencies.
- Importantly, the private key should remain private, similar to not sharing the key to a bank safe. There is also a corresponding public key, and a cryptographic link exists between the two.
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Location of Cryptocurrencies:
- The article clarifies that cryptocurrencies do not physically exist on any device, including hardware wallets like Ledger. Instead, the ownership is tied to the private key.
- Unlike files stored on a phone or local copies of emails on a computer, there is no physical representation of crypto assets. The relation between the public key and the associated coins is established through blockchain technology.
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Blockchain Technology:
- Blockchain technology enables the association of balances with a public key. This decentralized ledger is distributed and replicated across a network of computing machines, ensuring transparency and security.
- The distributed nature of blockchain technology is highlighted, with thousands of computing machines involved in the case of networks like Bitcoin. This ensures that information about balances is widely accessible.
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Hardware Wallets:
- The article makes it clear that coins are not stored in hardware wallets such as Ledger. Instead, these wallets serve to store and protect private keys.
- Understanding the distinction between private and public keys becomes crucial in realizing that the hardware wallet's role is to safeguard the means to access and spend cryptocurrencies.
In conclusion, the article provides valuable insights into the fundamentals of cryptocurrency ownership, emphasizing the significance of private keys, the role of blockchain technology, and the specific functions of hardware wallets. The overarching message is that in the realm of self-custody, understanding these concepts is essential for secure and informed participation in the cryptocurrency space. Knowledge, indeed, is power.
