However to spend ones bitcoin or convert it back to fiat currency through an exchange it looks like one must enter a private key.
Transacting with this private key without encrypting it would be unsecure... so how does this work? Is this what a digital signature is?
Private key is used to sign signature for your transactions. That is the evidence that you are owner of that wallet, that address and sign to send it to a receiver.
If anyone ask you to give up your private key when you are in offer for one transaction, your trade partner is a scammer whom is trying to steal your private key. If the scammer has access to your private key, all of your bitcoin will be stolen in a blink of eyes.
The chapter 4: Keys, Addresses of Mastering bitcoin can help you understand more.
https://github.com/bitcoinbook/bitcoinbook/blob/develop/ch04.asciidocEverything must be understood how to use the private key of any party should not know about it and only you can do it, if transacting or shopping and have to submit a private password then I think it is clearly a scam, I do not understand if this happens what happens You said it's true the money will run out in an instant after the private key is handed over. Oh no.
Newbie has to ask a lot for those who don't know so that can help from these difficulties this will be more helpful than in their own way, I prefer you to ask here.