Public and private keys are the two halves of the mathematical pair that controls bitcoin. The private key is a secret number that authorises spending; the public key is derived from it and lets anyone check that a transaction was authorised, without revealing the secret. For a company, whoever can use the private key controls the asset, so understanding the pair is the starting point for every custody decision.
This article explains the concepts. For the policies built on top of them, see key management and signing policies.
What public and private keys are
A private key is a very large random number, 256 bits long. The number of possible keys is so vast that guessing one by chance is not a realistic threat. Its security rests entirely on it being generated randomly and kept secret.
A public key is calculated from the private key using elliptic curve mathematics. The calculation runs easily in one direction and is, with today's computers, practically impossible to reverse. Knowing a public key does not reveal the private key.
The pair works like this:
- The private key produces a digital signature over a specific transaction.
- Anyone holding the public key can verify that signature.
- The signature is unique to that transaction, so it cannot be copied onto a different payment.
This is public-key signing. It is the same family of mathematics used to secure websites and banking systems, applied to a ledger that has no central operator.
Why "owning bitcoin" means controlling keys
Bitcoin is not stored inside a wallet. It sits on the public ledger, locked to conditions that only a valid signature can satisfy. A wallet is software or hardware that stores keys and produces signatures.
That has direct consequences for a company:
- Possession is control. Anyone who obtains a usable copy of the key can move the funds.
- Loss is permanent. If every copy of a key is lost, the bitcoin it controls cannot be recovered by anyone.
- There is no reset. No provider, regulator or court can issue a new key for an existing output.
This is why custody is a board-level topic. The options for who holds keys, and how, are set out in corporate Bitcoin custody.
Seed phrases and extended keys
Modern wallets rarely manage single keys. They use a hierarchical deterministic design, in which one master secret generates an unlimited tree of key pairs.
The master secret is usually written as a seed phrase of 12 or 24 words from a standard word list. Anyone holding that phrase can rebuild every key in the wallet.
| Item | What it is | Who should see it |
|---|---|---|
| Seed phrase | Master secret for the whole wallet | Nobody in normal operation; stored offline under dual control |
| Private key | Signs transactions for one output or address | Signing device only |
| Extended public key (xpub) | Generates all receiving addresses, cannot spend | Accounting and monitoring systems, under confidentiality |
| Public key / address | Receives funds | Counterparties |
Two points often surprise finance teams:
- A backup is as valuable as the wallet. A seed phrase in a safe is the asset, not a copy of it. It needs the same protection.
- The extended public key is sensitive. It cannot move funds, but it reveals every address and balance in the wallet. Treat it as confidential financial data.
Keys in a corporate setting
Individuals often hold one key. Companies should not. Corporate structures usually spread authority across several keys so that no single person or device can move funds alone.
The two main approaches are:
- Multisignature. Several independent keys exist, and a set number must sign, for example two of three. See multisig for companies.
- Multi-party computation (MPC). One key is mathematically split into shares that never come together in one place. See MPC vs multisig.
Either way, the design question is the same: who holds each key or share, where, under what approval rules, and how is it recovered if a person leaves or a device fails?
Ask your custody provider to show you, on one page, every key or key share that could move your bitcoin, who controls each one, and where each backup is physically stored.
Common misunderstandings
A few points we correct often in board discussions:
- "The exchange account is our key." A login to a provider's platform is not a private key. It is a claim on the provider, who controls the keys.
- "We can share the public key freely." A single receiving address can be shared. An extended public key should not be.
- "Encryption protects us." Bitcoin keys are not encrypted secrets in the usual sense; they are signing keys. Protection depends on where they are generated, stored and used.
- "Losing a device loses the bitcoin." Only if there is no valid backup. Equally, a backup that is badly stored can be a larger risk than the device.
Each of these points comes back to one principle: the company's control over its bitcoin is only as strong as its control over the keys and backups. Every policy decision about custody is, in the end, a decision about who can produce a valid signature, and under what conditions.
How keys connect to addresses
Receiving addresses are derived from public keys, usually through a hashing step that shortens them and adds a checksum. The address is what counterparties pay to. The format matters for fees, compatibility and controls, which we explain in what is a Bitcoin address.
How The Bitcoin World helps
We help finance teams turn key concepts into a custody architecture that fits their governance: who holds keys, the signing quorum, backup storage and recovery testing. Key storage and transaction signing are carried out by licensed third-party custodians or under the company's own documented controls. See our custody architecture service for how we approach the design.