One of the many mysteries surrounding Bitcoin and its technology is how to prove that you are the rightful owner of these digital pieces of data called “BTC.” After all, if you can’t prove you own the [pieces of a] Bitcoin, you can’t spend them either. This will be a rather technical explanation, as there is no other way to bring the message across.
Digitally Signing Transactions
Every time someone tries to send coins to another user on the Bitcoin user, their Bitcoin client will take one step “behind the scenes”: digitally signing that transaction. You can compare this step to putting your autograph on the receipt every time you pay with your credit card, but rather in a digital form without exposing any of your personal information.
There is one other benefit to this digital signature, as the user does not need to enter it manually every time he or she tries to send BTC to another user. Every Bitcoin address comes with a private key, which is required to prove you are the rightful owner of that Bitcoin address. This is similar to how a door locks and unlocks: there is only one specific type of key for that lock, and all other keys are slightly different than the next one.
Your private key is tied directly to your Bitcoin wallet address, and is always unique. In fact, you don’t even have to generate it yourself, as your Bitcoin software client will generate a private key for every Bitcoin address you ever create. Private keys can be exported from your Bitcoin software client, but we will talk more about that in a future article.
Verifying The Private Key
While all of the above sounds great, there is still the matter of security. After all, if every transaction is digitally signed with your private key, does that mean this private key is visible on the network by looking at a certain transaction? And if so, how can I protect myself from broadcasting my private key on the Bitcoin network?
Have no fear, as the Bitcoin protocol will never broadcast your private key to anyone on the network. Even though your private key is used to digitally sign every Bitcoin transaction you execute, the network will verify this signature by using your Bitcoin address’ public key. Both your private and public keys are mathematically linked, yet this connection has proven to be nearly impossible to crack.
One of the fun aspects of this public key is the fact that it lets the Bitcoin network verify your private key without displaying it on the network itself. Everything is done on your Bitcoin software client, and the digital signature produced by your private key is sent to the network. In turn, the Bitcoin network sues your public key [which is, after all, public] to verify the digital signature and makes sure the transaction is genuine.
Because the Bitcoin network runs this little “verification procedure” on every individual transaction, it makes sure that the original transaction sent by you is unmodified. For example, if you want to send funds to user B, and sign that transaction, its signature will be different from sending money to user B AND user C. This is a tamper-proof method of making sure that the original transaction was not altered in any way, willingly or unwillingly.
In a future article, we will take a look at how you can back up your private key and store it securely. Once you lose your private key, you will lose access to that specific Bitcoin address and any funds associated with it.