Explaining the Cryptography Behind Cryptocurrencies

Due to the decentralization of cryptocurrencies, bitcoin and Ethereum have really gained popularity. This is due to its secure nature, which supports peer-to-peer architecture, making it possible to transfer funds and other digital assets between two users. Interestingly, all this happens without a central authority.

Just how do these automated cryptocurrency systems ensure that all these transactions are processed diligently and with ultimate authentication, without any intervention? Below we discuss the backbone of cryptocurrency.

The ‘Crypto’ in Cryptography

In simple terms, the word crypto means a concealed secret. Cryptography means secret writing, in other words, the ability to exchange messages that the intended recipient can only interpret. Depending on the user and configuration, the cryptography technology can use a pseudo or full anonymity vis a-vis cryptocurrency’s cryptography, guaranteeing full security and protection from the central authorities among participants.

Cryptography technology has several uses. It can be used for various transactions occurring on a similar network. It also controls a generation of new currency units. Cryptography technology also comes in handy for verifying and transferring digital assets and tokens. Like a signature, cryptography ascertains or requires authentication upon user data access, and transactions amongst participants in that others should verify that it only belongs to you. It should be counterfeit-proof such that it can’t be forged and it should be binding because you cannot withdraw a commitment once it is signed.

Like a physical signature, cryptography uses complex mathematical codes to safely store and transmit data values, guaranteeing that only the intended recipients of the data or transaction can access, read, and process the data.

How Does Cryptography Work?

How convenient does it feel receiving radio signals in your car? Accessing several streams that allow you to broadcast on several channels, which is public knowledge. And while you are at it, think about the communication levels amongst soldiers on the battlefield. This form of communication will be secure and encrypted. It will only be received by the intended recipient or participants instead of being open to the whole world, unlike broadcasting channels. Ostensibly, cryptography in cryptocurrency works in the same way. Definitely, a cup of tea for privacy lovers.

Simply put, cryptography is a technique used to send and secure messages between the sender and receiver using a type of key and encrypted algorithm on both ends. The receiver decrypts the information to generate and access the original message. Encryption is the most crucial aspect of cryptography in that, it makes the message, data and information inaccessible to an unauthorized recipient or reader.

Cryptography, the science of encoding and decoding messages, has inspired several tools that find use in cryptocurrency. Cryptographic functions such as hashing and digital signatures form an integral part of bitcoin processing–even if bitcoin itself does not directly use hidden messages.

Cryptography Methods Applied in Cryptocurrency

Cryptography is really important for keeping cryptocurrencies secure and private. There are several methods that cryptocurrencies use to keep transactions safe:

  1. Public key Cryptography (PKC): This method uses both public and private keys to encrypt and decrypt data. Each user has a unique set of keys to sign and verify transactions.
  2. Hash Functions: These functions create a unique digital “fingerprint” of data to ensure that transactions are authentic and haven’t been tampered with.
  3. Elliptic Curve Cryptography (ECC): This method uses elliptic curves to create public and private keys and is faster and more secure than other PKC methods.
  4. Ring Signatures: These digital signatures allow users to sign messages as part of a group without revealing who signed them. Hence, protecting users’ privacy.
  5. Zero-Knowledge Proofs (ZKPs): These proofs allow one party to prove something to another party without revealing any other information. This is used in some cryptocurrencies to hide transaction amounts and addresses while verifying the transaction’s validity.

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.