Tech
Explain Cryptocurrency in Cryptocurrency
Cryptocurrencies like Bitcoin AND Ethereum they have gained enormous popularity due to their decentralized, secure and near-anonymous nature. These features support their peer-to-peer architectures and make it possible to transfer funds and other digital assets between two different individuals without a central authority.
How does this automated, pseudonymous cryptocurrency system ensure that all transactions are processed with due diligence and authenticity without any intervention? Enter the core concept and encryption tools, which form its backbone cryptocurrency blockchain.
Key points
- Bitcoin and other blockchain-based cryptocurrencies rely on cryptographic methods to maintain security and fidelity, putting the word “cryptocurrency” in the name.
- Cryptography is the mathematical and computational practice of encoding and decoding data.
- Cryptocurrency generally uses two different cryptographic methods: one dedicated to generating public-private key pairs and another for the purpose of validating transactions.
The “Crypto” in cryptography
The word “crypto” literally means hidden or secret. “Encryption” means “secret writing,” or the ability to exchange messages that can only be read by the intended recipient. Depending on the configuration, cryptographic techniques can provide pseudo or complete anonymity. In cryptocurrency, cryptography is used for multiple purposes: protecting the various transactions that occur on the network, controlling the generation of new monetary units, and verifying transfers of digital assets and tokens.
How does cryptography work in cryptocurrencies?
In simpler terms, encryption is a mathematical technique that hides information. Different techniques are used to convert data from plain text to ciphertext.
An encryption key is required to encrypt data. This is one of the fundamental aspects of cryptography. This key is generally an algorithm, or formula, that encrypts and decrypts information.
These keys make a message, transaction, or data value unreadable to an unauthorized reader or recipient. Only someone with the correct key can access the data.
In the case of Bitcoin, information from a block is sent through an algorithm, resulting in a 64-digit hexadecimal number. No matter how many characters are in the data, the result is always 64 digits.
Some of the most common encryption algorithms are:
- Advanced encryption standard
- Rivest-Shamir-Adelman (RSA)
- Elliptic Curve Cryptography
Bitcoin uses the elliptic curve cryptography method called secp256k1, where the formula y2 = x3 + 7 (on real numbers) results in an elliptic curve on a graph. This method is used to generate public and private key pairs.
Bitcoin also uses Secure Hashing Algorithm 256 (SHA256) to encrypt data stored in blocks. Hashing serves multiple functions on blockchains, including efficiently verifying the integrity of transactions on the network and maintaining the structure of the blockchain.
It encodes people’s account addresses, is an integral part of the process of encrypting transactions that occur between accounts, and, on the Bitcoin blockchain, is used to validate transactions (extraction).
Symmetric vs. Cryptography asymmetrical
There are generally two types of cryptographic methods used to generate keys, asymmetric and symmetric.
Asymmetric encryption
Encryption with asymmetric cryptography uses two different keys, public and private, to encrypt and decrypt data. THE public key can be disclosed openly, such as the address of the recipient of the fund, while the private key it is known only to the owner. In this method, a person can encrypt a message using the recipient’s public key, but it can only be decrypted by the recipient’s private key.
This method helps achieve the two important functions of authentication and encryption for cryptocurrency transactions. The former is achieved when the public key verifies the paired private key for the authentic sender of the message, while the latter is achieved because only the holder of the paired private key can successfully decrypt the encrypted message.
Most cryptocurrencies use public and private keys created with asymmetric cryptographic methods.
Encryption with symmetric cryptography
Symmetric Encryption Encryption uses the same secret key to encrypt the raw message at the source, transmit the encrypted message to the recipient, and then decrypt the message at the destination.
A simple example is to represent alphabets with numbers: for example “A” is 01, “B” is 02 and so on. A message like “HELLO” would be encrypted as “0805121215” and this value would be transmitted over the network to recipients. Once received, the recipient will decode it using the same reverse methodology: “08” is H, “05” is E, and so on, to get the value of the original “HELLO” message. Even if unauthorized people receive the encrypted message “0805121215”, it will have no value to them unless they know the encryption methodology.
Why are cryptocurrencies called cryptocurrencies?
“Crypto” refers to the cryptographic techniques used and the anonymity that cryptocurrency was once thought to provide.
Where does the word cryptocurrency come from in cryptocurrencies?
“Crypto”, or rather the Latinized form of the Greek word “kryptos”, means hidden, secret or covered. It has been used for centuries as a combined word to describe secret or hidden things. More recently, it has been combined with the word “currency” to refer to the cryptography used in blockchains and their tokens.
What is considered crypto?
Shortly after the introduction of Bitcoin, every blockchain-related token that emerged was considered a cryptocurrency. However, many entities define a cryptocurrency differently, and there is little consensus on what is and what is not a cryptocurrency. In general, cryptocurrencies use cryptographic techniques to secure information on a blockchain and issue a token that can be exchanged for money or another token.
The bottom line
Anonymity and concealment are key aspects of cryptocurrencies, and various cryptographic techniques ensure that participants and their activities remain hidden to the desired extent on the network.