Crypto Wiki: Cryptography

Cryptography has been around since the dawn of communication, but in the age of digital currencies and digital criminals it's more important than ever.

Cryptography has become essential today because our data needs protecting now more than ever. We rely on so many interconnected devices that information is constantly put at risk of being exposed to third parties who may want to use it for illegal purposes.

Cryptography (or cryptology) is one way of ensuring that any intercepted data is unreadable. But this isn't a new idea. It's been around for a long time; in fact it predates the digital era. Turning messages into code is almost as old as communication itself, but the computer age has elevated cryptography to another level.

What is Cryptography?

Cryptography is the science and practice of hiding information. These days that means using algorithms and computational power to make virtually impenetrable protection for storing and transmitting data.

In a simple case of text encryption, the readable words would be put through an encryption process that turns them into unreadable ciphertext. The only way that the text can be understood again is if the person receiving the message also has the decryption key that's needed to unlock it.

There are many cryptography techniques, with some being far stronger than others. Banks typically use the highest level of encryption and personal messages lower levels. But even less strong encryption is still pretty difficult to crack.

Cryptography is critical to the effective working of most blockchain systems, such as the one used by Bitcoin. It's the use of a certain set of cryptographic techniques that allow cryptocurrencies to operate public ledgers worth billions of dollars with total confidence in their security.

How Does Cryptography Work?

Current cryptography relies on a variety of disciplines including symmetric encryption, asymmetric encryption, hash functions, and digital signatures.

The Bitcoin protocol uses cryptographic proofs to secure the network and to validate each transaction. To ensure that users can only spend the funds in their own wallets and can't spend a month and once, digital signatures are used. To explain this, imagine a user sends 2 bitcoins to someone. This is done by effectively sending a message that confirms they want to add 2 bitcoins to somebody else's wallet and remove 2 from their own. They can only do this by providing a digital signature.

Another important part of the Bitcoin Protocol is the Hashcash function, which sets out the Proof of Work consensus mechanism and the mining process (which secures the network, validates transactions, and generates new coins). Hashcash relies on cryptography too, using a cryptographic function called SHA-256. Cryptography underpins blockchain technology and makes distributed networks (and many other networks) safe and effective.