Keys and Addresses

As we saw earlier in the book, Ethereum has two different types of accounts: externally owned accounts (EOAs) and contracts. Ownership of ether by EOAs is established through digital private keys, Ethereum addresses, and digital signatures. The private keys are at the heart of all user interaction with Ethereum. In fact, account addresses are derived directly from private keys: a private key uniquely determines a single Ethereum address, also known as an account.

Private keys are not used directly in the Ethereum system in any way; they are never transmitted or stored on Ethereum. That is to say that private keys should remain private and never appear in messages passed to the network, nor should they be stored on-chain; only account addresses and digital signatures are ever transmitted and stored on the Ethereum system. For more information on how to keep private keys safe and secure, see [control_responsibility] and [wallets_chapter].

Access and control of funds is achieved with digital signatures, which are also created using the private key. Ethereum transactions require a valid digital signature to be included in the blockchain. Anyone with a copy of a private key has control of the corresponding account and any ether it holds. Assuming a user keeps their private key safe, the digital signatures in Ethereum transactions prove the true owner of the funds, because they prove ownership of the private key.

In public key cryptography–based systems, such as that used by Ethereum, keys come in pairs consisting of a private (secret) key and a public key. Think of the public key as similar to a bank account number, and the private key as similar to the secret PIN; it is the latter that provides control over the account, and the former that identifies it to others. The private keys themselves are very rarely seen by Ethereum users; for the most part, they are stored (in encrypted form) in special files and managed by Ethereum wallet software.

In the payment portion of an Ethereum transaction, the intended recipient is represented by an Ethereum address, which is used in the same way as the beneficiary account details of a bank transfer. As we will see in more detail shortly, an Ethereum address for an EOA is generated from the public key portion of a key pair. However, not all Ethereum addresses represent public–private key pairs; they can also represent contracts, which, as we will see in [smart_contracts_chapter], are not backed by private keys.

In the rest of this chapter, we will first explore basic cryptography in a bit more detail and explain the mathematics used in Ethereum. Then we will look at how keys are generated, stored, and managed. Finally, we will review the various encoding formats used to represent private keys, public keys, and addresses.