Explaining the Crypto in Cryptocurrency

Cryptocurrencies like Bitcoin and Ethereum have gained immense popularity thanks to their decentralized, secure, and nearly anonymous nature, which supports the peer-to-peer architecture and makes it possible to transfer funds and other digital assets between two different individuals without a central authority.

How does this automated and pseudonymous system of cryptocurrency ensure that all transactions are processed with due diligence and authenticity without any intervention? 

Enter the underlying concept and tools of cryptography, which form the backbone of cryptocurrency processing.

The word “crypto” literally means concealed or secret. "Cryptography" means "secret writing"—the ability to exchange messages that can only be read by the intended recipient. 

Depending upon the configuration, cryptography technology can ensure pseudo- or full anonymity.23 In cryptocurrency, cryptography guarantees the security of the transactions and the participants, independence of operations from a central authority, and protection from double-spending.

Cryptography technology is used for multiple purposes—for securing the various transactions occurring on the network, for controlling the generation of new currency units, and for verification of the transfer of digital assets and tokens.

Cryptocurrencies emulate the concept of real-world signatures by using cryptography techniques and encryption keys. 

Cryptography methods use advanced mathematical codes to store and transmit data values in a secure format that ensures only those for whom the data or transaction is intended can receive, read, and process the data, and ensure the authenticity of the transaction and participant, like a real-world signature.

Think about receiving radio signals on your car’s radio that allows you to listen to the broadcast. This broadcast is public knowledge and open to everyone. 

By contrast, think about defense-level communications, like that between soldiers on a combat mission.

This communication will be secure and encrypted. It will be received by and known to only the intended participants instead of being open to the whole world. Cryptocurrency’s cryptography works in a similar way.

In the simplest terms, cryptography is a technique to send secure messages between two or more participants—the sender encrypts/hides a message using a type of key and algorithm, sends this encrypted form of message to the receiver, and the receiver decrypts it to generate the original message.

Encryption keys are the most important aspect of cryptography. They make a message, transaction, or data value unreadable for an unauthorized reader or recipient, and it can be read and processed only by the intended recipient. Keys make the information “crypto”, or secret.

Many cryptocurrencies, like Bitcoin, may not explicitly use such secret, encrypted messages, as most of the information that involves Bitcoin transactions is public to a good extent.

However, there are also privacy-oriented cryptocurrencies, like ZCash and Monero, that can use encryption to obscure the value and recipient of a transaction.

Some of the tools that were developed as a part of cryptography have found important use in cryptocurrency. They include functions of hashing and digital signatures that form an integral part of Bitcoin processing, even if Bitcoin does not directly use hidden messages.

The above is one of the simplest examples of symmetric encryption, but lots of complex variations exist for enhanced security. 

This method offers advantages of simple implementation with minimum operational overhead but suffers from issues of security of shared key and problems of scalability.

The second method is Asymmetric Encryption Cryptography, which uses two different keys —public and private—to encrypt and decrypt data. 





















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