I'm currently involved in developing a product (developed in C#) that'll be available for downloading and installing for free but in a very limited version. To get access to all the features the user has to pay a license fee and receive a key. That key will then be entered into the application to "unlock" the full version.

As using a license key like that is kind of usual I'm wondering :

1. How's that usually solved?
2. How can I generate the key and how can it be validated by the application?
3. How can I also avoid having a key getting published on the Internet and used by others that haven't paid the license (a key that basically isn't "theirs").

I guess I should also tie the key to the version of application somehow so it'll be possible to charge for new keys in feature versions.

Anything else I should think about in this scenario?