Most people do not know that cryptography is one of the main pillars of our modern society., Cryptography keeps the digital world cemented and it is all about the controlled access to data available online helping to keep digital data secure from cyberattacks. It is also considered as the building block of the most renowned blockchain technology. But before discussing how it is used in blockchain we will cover the basics of what cryptography is:
What is Cryptography?
Cryptography is the practice and implementation of the techniques that secure digital communication and data. It includes the algorithms that encrypt the data so that hackers and cybercriminals can not use it for malicious purposes.
The term cryptography is mainly classified into two different categories: Symmetric key cryptography and Asymmetric key cryptography (also known as public key). These algorithms are further classified in different subcategories. Let us understand how these algorithms work?
How cryptographic algorithms work?
Symmetric Key Cryptography
In this system, both the senders and receivers share a common key to encrypt and decrypt the message. Data Encryption Standard is the most popular example of symmetric key cryptography.
Asymmetric Key Cryptography
The asymmetric key is slightly different from the aforementioned as the encryption and decryption keys are not the same. Keys are different but are mathematically related, such that retrieving the plain text by decrypting ciphertext is feasible.
How does it help in the prevention of cryptocurrency scams?
The cryptocurrency scams are everywhere to be seen. It all started after a surge in the price of bitcoins in late 2017. In a finding by Bitcoin.com News, a total of $1.36 million worth of cryptocurrencies were stolen by the cybercriminals. Moreover, a recent heist at Binance (a crypto exchange platform) reports a loss of $40 million worth of Bitcoin.
Additionally, there are a lot of crypto scams going on, some of them are real and some are allegations. For instance, Bitconnect, a crypto leading exchange terminated its operations and vanished resulting in a financial loss to the customers. There are a lot of scams in the crypto industry with trading robots, that promote trading with Bitcoin and other cryptocurrencies. In Italy, a well-known robot called Bitcoin Era has been the target of social media promotions with celebrities involved. It’s unclear whether these celebrities have endorsed these services or any other bitcoin robots.
However, with the rapid evolution of cryptography, the researchers and technologists continue to find the latest ways it can be implemented and building a distributed and secure ledger technology one of those ways. There are two ways cryptography is used to avoid scams and data theft in cryptocurrencies.
The first way is by the use of hashing algorithms to encrypt and preserve the order of transactions. Thus it creates a ledger or a registry of each transaction but unlike fiat currency ledger, cryptocurrency is ledger is decentralized and is distributed among different computers with the same ledger view on each system. In Bitcoin, it is done by a process called mining. The bitcoin miners search for hash values which satisfy a certain property of the ledger.
The second-way cryptography is used in safeguarding the integrity of cryptocurrencies by creating digital signatures. The digital signatures ensure the data integrity, providing authentication of each transaction and non-repudiation. A digital key is created by combining the users private key with the data they want to share. This combined public key is used to authenticate the identity of the users once their digital signature is created. In Bitcoin, these digital signatures are used to make sure that the correct amount of bitcoin is transferred from one wallet to another.
While all of this might sound a bit complicated but the main point to portray the use of cryptography is to highlight that it is the building block of blockchain technology and cryptocurrencies, it provides blockchain with the main quality it is known for which is distributed ledger with security.