The Explanation of Blockchain Cryptography

The crypto world is not a new thing these years. You can hear numerous investors talking about investing in crypto, operating various blockchain platforms for easier access to goods and services, etc. So, what is blockchain, and what about its performance?

Blockchain is closely connected to cryptography. There would be no blockchain without cryptography, or rather cryptographic encryption. Or at least it wouldn’t be as decentralized and secure as today’s blockchain systems.

Take a look at the article to determine the subtleties of blockchain’s cryptography and how these two concepts are connected. You will learn more about the prospects of blockchain thanks to cryptography and other valuable details associated with the crypto world.

The Basics of Blockchain Technology

Before you dive into cryptography, learn a bit more about blockchain. Learning more about the decentralized ecosystem should be easier to understand what cryptography has to do with blockchain.

Blockchain is a peer-to-peer network that does not require any third party to function. If you look at the word «blockchain», you can see that it consists of two words: «block» and «chain». To put it simply, the blockchain is a chain that consists of blocks.

Blocks, in this case, are the records of various transactions and operations (data blocks) within the chain (blockchain system). Meaning, a blockchain is a growing system that consists of multiple records.

When the block with data joins the chain, it becomes a part of a public database stored as a list. All these lists are connected thanks to cryptography. Meaning, cryptography is one of the essential parts of a blockchain. Without cryptography, blockchain wouldn’t have worked.

What is Cryptography in the World of Cryptocurrency?

So, what is cryptography? The literal translation of crypto is a secret. It’s encryption that someone has to decode to understand it. And the second part means writing. Meaning it’s a piece of encryption written in a way so that others don’t understand its meaning.

As you may have already figured out, cryptography is needed to ensure security. Cryptographic technology is focused on providing that the encryption offers a complete or pseudo-anonymity. As you know, blockchain technology is all about pseudo-anonymity when anyone can see someone’s public address and check the balance of the user’s account, but they can’t tell who the owner is. Meaning they don’t know who this person is in the real world.

Cryptography brings more security to the system when it comes to blockchain networks, such as Bitcoin or Ethereum. It enables all blockchain users to make safe transactions, doesn’t allow double-spending, and makes it nearly impossible to be involved in money laundering shenanigans.

Overall, cryptographic technology uses advanced mathematical codes that help store and transfer data. It also plays an essential role in making blockchain decentralized. The result is that blockchain users can obtain only those transactions or data intended for them. Only these users can read, process, or pass this data.

Thanks to cryptography, it’s possible to verify that a particular participant was intended to get the data. Meaning, cryptography helps verify someone’s identity, or in the case of the crypto world, someone’s authenticity.

Types of Cryptography

As you may understand, there are numerous ways to encrypt data in a blockchain. Three methods of enabling algorithms are available:

• symmetric-key cryptography;
• asymmetric key cryptography;
• hash functions.

There are specific pros and cons for each method.

Symmetric-Key Cryptography

The primary idea of symmetric key encryption is to rearrange data; consequently, to pick the exact key to encrypt and decrypt. This method is the opposite of symmetric encryption when you have no identical keys for doing two different tasks.

You have to keep the secret key to yourself because no one should find out about it. But in an asymmetric method, you can share one key since you have the other one to do the decoding. This method is also called secret key encryption.

The method has the following advantages:

• high security;
• rather fast.

However, there are significant drawbacks:

• susceptibility to a lot of damage if compromised;
• problems with sharing the key when you don’t use the project as private.

This method is suitable in case you don’t provide private access. You face various safety issues when you have to share encrypted info.

Asymmetric-Key Cryptography

Asymmetric key encryption is the procedure that operates an opposite approach to the one noted above — asymmetric key encryption functions with 2 keys rather than just 1 key to handle the information.

Here you can see the parallel with blockchain technology. The bundle of keys is called public and private keys. If the user plans to opt for encrypting data, he should use the first; he can also share it. But for decoding, he should have the second one, and he can’t transmit it unless he wants to give admission to his data. It is always important to stay cautious because the data can be stolen.

The advantages of the method:

• enables message authentification;
• convenience;
• detects alteration of data.

What about the drawbacks? They are:

• public keys cannot be established;
• has risks of losing personal keys, as a consequence, the information is lost forever;
• encryption by this method is a relatively slow process.

In comparison to the asymmetric type of encryption, the asymmetric one is slightly more convenient when you need to share data with other public users.

Hash Functions

This type of encryption serves an entirely different purpose, so it’s impossible to name the advantages or disadvantages of methods. Mainly this type is used to ensure that even if the data is stolen, the hacker won’t be able to decode the data. It doesn’t even use keys, only ciphers to generate the ciphertext. As a result, it’s impossible to decode anything even upon receiving ciphertext.

What does Cryptography have to do with blockchain?

You probably have already assumed that blockchains use at least one method — asymmetric key encryption. Nevertheless, the user can use other types of encryption to make blockchains safe.

Typically, blockchain networks use two cryptographic mechanisms — the asymmetric key and hash functions. The latter method is used to see the same parts for every blockchain network user. Most modern blockchain networks utilize the hashing algorithm named SHA-256 as the primary function.

The utilization of hash function encryption enables the following within a blockchain network:

• Fast results. All output attempts are rendered as fast as possible.
• Uniqueness. When every input has an entirely different, one-of-a-kind output.
• Deterministic effect. When passed through the hash function, inputs have the same outcomes.
• Avalanche function. Even if the slightest bit of information is altered, it completely changes the overall production.

At the same time, the hash function suggests a high-security grade thanks to disabling any reverse engineering attempts. For instance, you would think that having the output and the hash function at your disposal, you can generate the input and get the private data. But the hash function completely disables this option. It is why blockchain networks using hash functions are relatively protected.

But that’s not the only positive effect caused by hash functions. The method plays a rather influential part in connecting blocks to maintain data integrity. The impact that allows this to take place is called the avalanche function.

What does it mean? Take, for instance, the most commonly used hashing algorithm SHA-256. You get an output composed of a certain number of characters and numbers if you make an input. But just the most negligible difference in this input will make a very noticeable change in the outcome.

The change in input makes the whole chain ineffective. This slightest alteration of information that leads to output change makes blockchain platforms relatively reliable for storing data.

The system uses another algorithm, asymmetric key encryption, to generate private and public keys. The private key is generated randomly, and the public key is produced using an irreversible mechanism.

Even though this method has disadvantages like not being the fastest process, it’s beneficial when you have two separate keys. One more essential part of asymmetric key encryption is the crypto signature.

Blockchain and Cryptography in Digital Signatures: What about the Advantages?

Digital signatures offer an excellent grade of integrity to the system. The reason to say this is because it’s easy to verify digital signatures. Moreover, it’s impossible to corrupt the data within the signature. Overall, you can compare this feature to the situation in the real world when someone needs to approve something by signing a document.

Usually, digital signatures are operated to keep the blockchain’s integrity as they verify that the data presented is correct and verified. Overall, hashing functions, asymmetric key encryption, and the digital signature procedure are mainly the three components of a primary blockchain.

The main benefit of these three functions working together is security. First, safe and effective linking is enabled. Any alteration will be noticed. All components working as a system allow blockchain systems to apply cryptography within the network to run cryptocurrencies. So, without cryptography, we wouldn’t have cryptocurrency.