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April 21st 2021

Cryptoassets: public and private keys

Encryption keys are a central feature of cryptoassets. Exchange tokens use a public and private key system:

  • a private key is a randomly generated string and is used to authorise a transaction involving tokens held at a public address;
  • a public key is mathematically generated from a private key, linking the two keys cryptographically.

A private key cannot be generated from a public key.

The public address is shared across the Distributed Ledger (DL); anyone who knows that address can look at the DL and see all transactions involving the public address. Any person who knows the public AND private keys can authorise transactions involving tokens held at the relevant public address.

If a private key is lost, the tokens will continue to exist at the public address; however the owner is unable to undertake any transactions with those tokens. If private key details were kept on a computer that was subsequently destroyed, the tokens would continue to exist, but would be unreachable.

Need help filing your income tax Self Assessment return? Got a question about tax and cryptoassets? Contact us today.

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