How can you make a transaction without having to trust the other party with access with your personal data? How do you keep your identity safe? Blockchain’s answer to this question comes in the form of encryption that uses keys.
When you create a wallet, you are given a set of keys, one private and one public. Together, the two keys act to create your digital identity, and they are used to encrypt your transactions. The private key authenticates your identity. Think of it as the password to your account. The only personal data that you need to share is the data required by the company that is providing you with your wallet.
Your public key authorizes you to use the network. Think of your public key as similar to an email address. When someone has your public key, they can include you in a transaction. With both keys, you can transact on the network. Just like with email, the person receiving your email doesn’t have to know your password in order to read the email.
The network uses public and private keys to asymmetrically encrypt your transaction. Keeping with the email example, your transaction is sending a message to me. When your message is sent, it is encrypted with your private key and my public key. I decrypt the message with my private key and your public key. That way, neither of us must exchange personal data, but the message can still be communicated.
Using two keys, public and private, people can transact on a network without compromising anyone’s personal data. In the next lesson, we’ll discuss how smart contracts leverage the network to facilitate transactions.