Cryptography is a way of securing data and communications through the use of specific codes. The technology derives from concepts in mathematics and rule-based calculations, commonly known as algorithms.
It isn’t a recent innovation, but these days it’s commonly associated with scrambling plain text through a technique known as encryption. Cryptography gets used with almost all financial transactions, including blockchain transactions.
When it comes to answering the question “what is cryptography,” it makes sense to step back in time and learn more about its origins. The history of cryptography dates back to ancient Egypt, where non-standard hieroglyphs were found carved into the walls of a tomb.
Early forms of cryptography were also found in ancient Greece and were even in use by the early Romans. Those old forms of cryptography used simple ciphers (algorithms for encrypting or decrypting text), such as shifting letters.
For example, the Caesar Cipher, named after Julius Caesar, shifted letters a few numbers down the alphabet. A right shift of two meant that “A” became “C,” “B” became “D,” and so forth. It’s one of the oldest and simplest forms of cryptography that sometimes still gets used today.
The Caesar Cipher was in use by Julius Caesar when he wanted to communicate with his generals without anyone eavesdropping on the content of his messages. Another example of war-time cryptography can also be found in more recent times: World War II.
Nazi Germany used the Enigma Machine, an electromechanical cipher device that resembled a large typewriter, and made heavy use of it throughout World War II.
Cryptography was primarily used (and kept secret) by many of the world’s governments until the 1960s. Today, it is firmly planted in the public domain and gets used by most people in their daily lives, whether they’re aware of it or not.
For instance, most websites you browse use cryptography to encrypt data between your device and the website using TLS or Transport Layer Security, a computing protocol designed to facilitate privacy and data security for Internet communications.
Cryptography exists because there is a strong need to protect information written in plain text from unauthorized persons. Today’s cryptography is far superior and advanced to the forms used throughout the ages.
The following are some reasons why cryptography exists and why it’s an essential security tool in today’s digitally connected world:
There are many examples of why you would want certain information to be confidential. For instance, you want to communicate private information in the most secure format, ensuring that only the recipient receives and reads that data.
Cryptography is a viable way of ensuring that all information, securely transmitted from one location to another, gets sent and received intact. Both the sender and receiver don’t want any third parties to interfere with the communication and possibly alter it during transmission.
There must be some clarification that both the sender and receiver of any confidential information are who they say they are. Cryptography is a way of guaranteeing the authenticity of both parties.
Finally, cryptography offers a mechanism that validates that all information sent between each authenticated party is correct and hasn’t been altered. This gets achieved through “public-key” or asymmetric cryptography (more on this in a moment).
So far, you’ve read a brief history of cryptography and have a greater understanding of why it exists - both in history and in today’s modern, digitally connected world. However, before you can understand cryptography’s use in blockchains, you need to learn about the different types:
There are three main types of cryptography in use today, and the first one is Symmetric-key cryptography. A “key” is a string of characters used in an encryption algorithm to encode or decode data.
Symmetric-key cryptography uses a single key for both processes but has an inherent problem; it cannot securely transfer the key between senders and receivers. Symmetric-Key Cryptography is also known as Secret-Key Cryptography.
The second and arguably most common type of cryptography used today is Public-key cryptography, sometimes known as Asymmetric Cryptography. It’s an encryption method that uses an encryption and decryption key or public and private key, respectively.
Lastly, there is cryptographic hashing. It’s an encryption method that doesn’t use any keys but instead uses a cipher to create a fixed-length value from plain text (a “hash value”). Blockchains use both public-Key cryptography and cryptographic hashing functions.
The concept of cryptocurrencies like Bitcoin and Ethereum is to provide a decentralized alternative to traditional banking systems where transactions are transparent, and public ledgers (blockchains) of transactions are visible to all.
Of course, such an innovative way of sending and receiving cryptocurrencies between entities must be secure to prevent fraudulent transactions and digital theft. Also, transactions must be verifiable not to have been tampered with in any way.
The solution comes in the form of cryptography. As you know, cryptography is an excellent way of securing confidential information and helps to eliminate “man in the middle”, or cyber hacking attacks.
With that in mind, here are some of the ways that cryptography in blockchain technology is both beneficial and essential:
The details of the sending and receiving entities are confidential. The wider public can see the dates, times, and amounts for each transaction, but no personally identifiable information is available.
A blockchain is a public ledger that lists all transactions that have taken place. Cryptography is a way of ensuring that those transactions are true and correct before they get added to a blockchain.
Before ending this article, it’s worth briefly explaining why blockchains exist. In a nutshell, blockchains enable cryptocurrencies to operate without the need for a third party to verify transactions (i.e., a bank).
A blockchain is a permanent public ledger and a concept that reduces risk and also negates the need for processing and transactional fees more commonly associated with traditional banking systems.