Public Key

One of the most common forms of cryptography used to keep data secure is called “public key cryptography” (also known as “asymmetric cryptography”). Over the years, public key cryptography has been used for many things: secure email, file transfers, VPNs, and today it is also a core security mechanism used in the world of blockchain and digital assets.

In general terms, public key cryptography relies on a mathematically-related pair of digital keys: one key is able to be shared, and hence referred to as “public.” The other key — the private key — is used to prove authenticated ownership of some resource.

With digital assets and crypto wallets, the private key is used to sign transactions and prove ownership of funds. You must keep the private key secret, due to its ability to spend crypto and to restore a wallet!

When you set up a new crypto wallet, the wallet generates a public and private keypair, and uses a form of that public key as an identifier for a blockchain address that "holds" your digital assets, kind of like a bank account number. Any digital assets that you add to your wallet are then associated with that blockchain address. People can send crypto to you at that blockchain address, and the address can also be represented as a QR code to simplify sharing your wallet address with others to receive funds. It is common for organizations to publish a public QR code or blockchain address to receive funds from customers or donors.

In practice, your crypto wallet probably manages multiple private - public keypairs for you. That’s because most crypto wallets allow you to have many sub-wallets in a kind of hierarchical tree based on many private and public keypairs (a Hierarchical Deterministic (HD) wallet). This is a convenience for crypto wallet users, since you probably want to keep multiple types of crypto (like Bitcoin and Ethereum) in the same wallet. An HD wallet keeps track of them all, and offers you the ability to interact with your accounts individually, or by using the initial “master” public key to view the sum value of your entire wallet.

The master public key for a crypto wallet is also known as an “extended public key,” abbreviated as “XPUB.” An interesting capability comes from knowing a public key: it can give you a view into the contents and all of the transactions associated with the blockchain address. It is possible to use a blockchain explorer to monitor a blockchain address, but it is even easier to monitor if you import an XPUB into a crypto wallet to create a “watch-only wallet.” You can do this by importing an XPUB into any crypto wallet that supports “watch only” / “view-only” wallets. (This only allows you to view what crypto has been associated with a wallet address; it does not allow you to spend or affect that crypto.)

There is an important privacy nuance to keep in mind about a wallet’s XPUB: If you create a watch-only wallet with a master / extended public key (an XPUB), that view-only wallet will display information from all of the addresses / accounts associated with that wallet … not just a single address. For that reason, although it is common to share a public key and its associated public address with anyone to support receiving crypto payments, it is not advised to share your master / extended public key with the public, because they would be able to use it to learn about not just one address, but about the combined total of all of your addresses stored in your crypto wallet. Chances are, you want more privacy than that, so do not casually share your XPUB.