Cryptography: the science of cryptocurrency

January 10, 2019
Darya Karatkevich

In its most basic form, cryptography can be described as an information security method. It is the art of developing codes for the safe transition of information. Its origins date as far back as 1900 BCE, and since then it has been used to secretly exchange information in plain sight. You may be thinking, what do secret codes have to do with cryptocurrency?

The origins of cryptocurrency

In 1983, cryptographer David Chaum presented the first anonymous cryptographic electronic money called e-cash. Chaum, using those first ideas, would then go on to develop them further to create DigiCash in 1995. DigiCash was a digital currency (sounds familiar?) utilizing cryptographic elements in order to make it untraceable.

Chaum’s ideas would continue to be expanded upon by various cryptographers throughout time until the release of Bitcoin in 2008 by Satoshi Nakamoto, whose real identity still remains anonymous. Now, cryptocurrencies have expanded substantially since the first ideas of digital currencies were developed in early 1980s.

We use them to purchase products, trade and invest, and the technologies behind them, such as blockchain, have been adopted across multiple industries. The uses for cryptocurrency are constantly growing, yet many of us are unaware as to why we call them cryptocurrencies and what are their ties to cryptography.

Cryptography uses in cryptocurrency

Cryptocurrencies such as Bitcoin and Ethereum employ various aspects of cryptography and data encryption to ensure secure transactions. One of these aspects is performed through asymmetric encryption cryptography.

Asymmetric encryption cryptography relies on keys to decipher various codes. A key, simply put, is the instructions used to both create and decipher a code. When transferring funds through an exchange, the sender has a public address, as does the recipient of the funds. The sender also has a private key which they can make available to whomever they choose. So, if someone purchases something with Bitcoin, they send the funds through an encrypted code to the recipient’s public address. Without the private key, the code cannot be deciphered and therefore the funds cannot be received.

For example, John is trying to send a secret message to his friend Bob, that reads, “12334”. At least that is how Bob will interpret it unless he has the key to decipher it. The key in this example would be 1=H, 2=E, 3=L, and 4=O. An extremely basic key, to say the least. So, if Bob has the private key, only he should be able to decipher the message that reads “HELLO.”

Obviously, if Bitcoin used such a juvenile form of cryptographic technology, theft would run rampant. However, this is the basic concept from which elliptic curve cryptography was built, a much more developed form of cryptography utilized by both Bitcoin and Ethereum.

Hashing

Another, more complex method used in cryptocurrencies is hashing. Hashing basically breaks down longer sets of code into a single smaller line of code. It is used by cryptocurrencies to verify the data integrity of the transactions on the network. It can be considered the backbone of blockchain.

In terms of transactions, hashing combines elements from both public and private keys, which are then presented to the recipient of a transaction. Through a series of algorithms, the hash code is then deciphered ending up with the public key of the sender as well as the private key needed to access the funds. By breaking down longer sets of code, combining them, and then rearranging them, you are in turn making it harder to decipher. This is how a digital public ledger can operate publicly.

Privacy coins

Privacy coins such as Zcash and Monero employ cryptography in even more complex ways to make transactions completely anonymous. Due to the high level of sophistication in their systems, Zcash and Monero are often used for illegal methods as there is no way to track either the sender or recipient of transactions.

Unlike Bitcoin or Ethereum, which assign permanent public addresses to its users, privacy coins create new addresses with each transaction. Although the technology behind these privacy coins has been used negatively, the level of anonymity associated with them increases crypto security as well as computer security.

The two sides of cryptography

The science behind cryptocurrencies is extremely complex. Usually, when theft occurs, it is often due to human error or negligence related to computer security. As stated earlier, cryptography is the art of developing codes, however, it is also the art of breaking them. With each new code developed to increase security, there will always be someone trying to crack that code.

Post written by Darya Karatkevich
Darya is a blockchain market observer with 5+ years of experience as an author and editor for major tech blogging platforms. Her fortes are blockchain technologies and solutions, cryptocurrencies and crypto-related regulations.

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