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Chapter 4 - 0 of 10 quizzes passed

Keys and Signatures

You do not have an account. You have a mathematical key that authorizes spending.

  • Distinguish a private key, a public key, a seed phrase, and an address
  • Explain what a transaction signature proves — and what it does not prove

No banks, no accounts

In the fiat system, your bank guards access to an account. In Bitcoin, there are no account names or passwords on the ledger. Ownership is proven with public-key cryptography: a private key signs, a public key verifies, and the network checks the signature against the spending condition on the coin.

The private key and the seed phrase

A private key is a 256-bit number. It must be generated with real randomness; a guessable key is a stolen key. Most wallets do not store one key. They derive many keys from a seed. BIP39 turns random entropy plus a checksum into mnemonic words, then derives a seed from those words and an optional passphrase. A different passphrase produces a different wallet; the words alone cannot recover that wallet if its passphrase is lost. The phrase is a backup of the key material, not a password you type into websites. Anyone who sees it can spend the funds.

The digital signature

When you spend bitcoin, your wallet builds a transaction and signs a hash of the parts the signature should cover — the sighash. ECDSA is used for legacy and segwit v0 inputs; Schnorr (BIP340) is used for Taproot. The signature proves that the spender controlled the key and authorized those specific bytes. Change a covered field and the signature no longer verifies.

What a signature does not prove

A valid signature does not prove that the recipient is honest, that the fee is fair, or that the transaction is private. It also does not prove that the signer understood what they signed. Wallet UX matters: a malicious transaction can be technically valid. Verify the destination and amount on the device that signs, especially with hardware wallets.

Try it

This demonstrates a signature over a hash. A real Bitcoin signature commits to a transaction sighash, not arbitrary text.

compact ECDSA signaturec80083ee4a9d3d2ac4d7c1ce3da1145c907f602318ac4baa923decb3d650c7b43cac9cd7012548e36052b303d900d934ad6d46c2225ba1f7acffb857b1fea2ef
Signature verifies

What you should take away

A private key authorizes spending; a seed phrase is a backup of key material; a signature proves control and authorization for specific transaction bytes. It does not make a transaction wise or private.

Retrieve, then apply

Explain the order: mnemonic words, seed, private keys, public keys and address. Where does an optional passphrase fit?

Check your explanation

Random entropy and checksum produce words. Words plus optional passphrase derive a seed; the wallet derives private/public keys and spending conditions, encoded as addresses. Never enter real secrets here.

Checkpoint

Question 1 of 3

A valid signature authorizes a payment to the wrong recipient. What has the network established?

Question 2 of 3

Which of these can someone use to spend your coins?

Question 3 of 3

A signature verifies against your public key. What does that prove?

Sources

Reviewed 2026-10-25 · not financial advice