Understanding Bitcoin Wallet Addresses: Private Keys, Public Keys, and Their Interrelationships

Introduction to Blockchain Fundamentals

Blockchain technology revolves around understanding Bitcoin's underlying mechanisms, which incorporate advanced cryptographic concepts such as:

• Key pairs (Private/Public keys)
• Symmetric & Asymmetric Encryption
• Hash functions
• Elliptic Curve Cryptography (ECC)

These elements collectively enable secure and verifiable transactions on the Bitcoin network.

Core Components Explained

1. Key Pairs

Every Bitcoin wallet contains one or multiple key pairs, each consisting of:

• A Private Key (used to sign transactions)
• A Public Key (used to verify transactions)

2. Private Keys

• Definition: A 256-bit random number generated via SHA-256, serving as the cryptographic "password" to control Bitcoin funds.

• Format: Typically encoded as 51-52 character strings, starting with:

  • "5" (Mainnet) – Example:
    5JmXoYTRXPvWufwVEw9KyVFLGSDWPpUAiygKV9S2ouQ8YxRCPCo
  • "K"/"L" (Mainnet) – Example:
    KzPkBcF6BHR1pM2oAjCDR4wUAUtxbHcVVjN9R162w1asuhzcCSwY
• Security Note: Losing a private key means irreversible loss of associated Bitcoin. In 2013, a user accidentally discarded a hard drive containing private keys worth $7.5 million.

3. Public Keys

• Derivation: Generated from private keys using Elliptic Curve Cryptography (SECP256K1).
• Key Property: While private → public key computation is feasible, reversing the process is computationally infeasible due to the "discrete logarithm problem."

Cryptographic Methods

Symmetric vs. Asymmetric Encryption

Elliptic Curve Cryptography (ECC)

• Advantage: Provides robust security with smaller key sizes compared to RSA.
• Use Case: Bitcoin employs ECC for key generation and transaction signing.

Bitcoin Wallet Addresses

Structure

1. Derivation: Public Key → SHA-256 → RIPEMD-160 → Base58Check encoding.

2. Formats:

   • P2PKH (Pay-to-Public-Key-Hash): Starts with "1" (e.g., 1DckBL9QbU99vKNJKcv6BMWxNFtg8eo1Tf).
   • P2SH (Pay-to-Script-Hash): Starts with "3" (used for multisig transactions).

👉 Explore secure wallet options

Wallet Types

Non-Deterministic Wallets

• Feature: Randomly generated keys (e.g., Satoshi client’s "JBOK" method).
• Drawback: Complex backup requirements.

Deterministic Wallets

• HD Wallets: Use a seed phrase (BIP39 standard) to regenerate all keys.

  • Example: 12-24 word mnemonic like "Mary Include Car..."
• BIP44: Extends HD wallets to manage multiple cryptocurrencies under one seed.

Encoding Standards

Base58 vs. Base58Check

Key Generation Process

1. Private Key: 256-bit random number (e.g., KzCiehi5pTy9kqH6p7XBxjSvVPLSCsKWedJhGJXXTH7n849kumBC).
2. Public Key: Derived via ECC (Compressed: 0361BA5FF1B402ED585D2CFAAE9AEB1BA388CCDA425E73CF5748D5288015DB6B3F).

3. Address:

   • SHA-256 + RIPEMD-160 → Add version byte (0x00) → Base58Check encode.

FAQ Section

Q1: What happens if I lose my private key?

A: The associated Bitcoin becomes permanently inaccessible. Always back up keys securely.

Q2: Can someone derive my private key from my public key?

A: No—ECC’s one-way function makes this computationally infeasible.

Q3: Are "1" and "3" addresses interchangeable?

A: No. "1" addresses are P2PKH, while "3" addresses are P2SH (often for multisig).

Q4: Why use Base58 instead of Base64?

A: Base58 removes ambiguous characters to reduce human error in transcription.

👉 Learn more about secure key management

Conclusion

Understanding the hierarchy from private keys to wallet addresses is critical for Bitcoin security. Always:

• Use offline methods for key generation.
• Prefer HD wallets for easier backup.
• Store private keys in cold storage (e.g., paper wallets).

By mastering these concepts, you ensure both security and control over your Bitcoin assets.