With the rise of the digital era, the concept of encryption and cryptography has gained massive popularity. Online data is constantly exposed to threats such as theft and corruption.
Cryptography has therefore proven as one viable solution that enables users to protect information and data from various risks associated with data storage as well as distribution.
However, the concept of data encryption and cryptography is not new, as people have always sought ways of preventing unintended audiences from comprehending their messages. Nevertheless, the rapid increase in usage of computing devices has elevated the discipline of cryptography and encryption to new levels.
This article aims to explain what cryptography is in simple terms. Simply put, cryptography is the area of study around hiding information. Specifically, modern cryptography utilizes mathematical theories and computation to encrypt and decrypt data but also to guarantee the authenticity and integrity of information. The information that one may want to encrypt varies greatly, but common applications include text encryption of a plaintext (i.e. data that are easily and clearly comprehended) such as a password or even an entire document.
Essentially, in the process of text encryption, a plaintext is turned into ciphertext (i.e. data that are unreadable). This process guarantees that the information that was sent can only be read by the ‘right’ person, i.e. the one who is in possession of the specific decryption key which will decrypt the ciphertext. Therefore, by utilizing certain cryptographic techniques, senders can send sensitive data to receivers even via unsecured networks.
The level of encryption depends on the extent to which the data requires protection. For example, the type and degree of security applied on a common personal file or contract is lesser than the one used on cryptocurrency networks. A majority of blockchain systems, like the one Bitcoin is operating on, utilize a certain set of cryptographic methodologies and techniques, which enable them to operate as decentralized and public ledgers, where digital transactions occur in very secure ways.
Let’s now dive into how cryptography works. In modern times, the area of cryptography ranges greatly, but some of the most relevant areas focus on symmetric encryption, asymmetric encryption, hash functions, and digital signatures.
Specifically, the Bitcoin protocol uses cryptographic proofs as a means to secure the network and to ensure the validity of transactions. With the use of digital signatures, it is established that a user is only capable of spending their own funds from their own wallets, but also that these funds are not spent more than once, tackling the issue of double spending. For example, if UserA sends 3BTC to UserB, it means that UserA has created a transaction, or a ‘message’, confirming the addition of 3BTC to UserB’s wallet simultaneously removing the coins from UserA’s wallet. However, this transaction, and ‘signed message’, can only happen when UserA provides their own digital signature which ‘signs’ the ‘message’ and verifies it.
The Bitcoin protocol has another crucial element, which is known as the Hashcash function. This defines the Proof of Work (PoW) consensus mechanism as well as the mining process which is in place to secure the network, validate the transactions, and generate new coins. The Hashcash function utilizes the cryptographic function called SHA-256, which is considered to be very secure and has replaced the weaker SHA-1 function.
All in all, cryptography is a fundamental element of blockchain technology and thus, for cryptocurrencies like Bitcoin. It is through the application of cryptographic proofs on distributed networks that the trustless economic system was created, giving rise to Bitcoin and other decentralized digital currencies.