What’s Cryptography And How It’s Used in Cryptocurrencies?
Have you ever wondered what puts the crypto into cryptocurrencies is cryptography– a way to encode messages so that transferring information can be done securely. The idea of digital cash is not new. Before bitcoin, though, all forms of digital had a key problem common to all digital goods. They were infinitely copy-able.
What’s Cryptography And How It’s Used in Cryptocurrencies?
Bitcoin fixed this with cryptography by using it for its Blockchain Network. For example, think of a bank check that can’t be copied so it needs your signature. For this signature to be considered secure, it must be verifiable as your own signature, counterfeit proofs it can’t be forged and impossible to deny by the signer later on.
Cryptocurrencies fulfil these requirements through the use of cryptographic techniques and encryption keys. These keys ensure the authenticity of the transaction and participants like a real world signature. They also make it so that only those for whom the data or transaction is intended for can receive, read and process it.
Cryptography in Cryptocurrencies
Cryptography is used in cryptocurrencies for a number of different reasons and which makes the blockchain networks 100% functional, decentralized and errorless. For instance, the cryptographic keys for cryptocurrencies are created using public key cryptography for digital signatures and cryptographic hash functions.
Cryptocurrency Algorithm and Cryptographic Hash Functions
To perform accurately and independently cryptocurrencies require an algorithm to keep working on. For that the cryptographic algorithms are created and used for each of the cryptocurrencies. For example, the cryptographic algorithm used by bitcoin is called SHA-256 secure hashing function 256.
SHA-256 is used in several different parts of the Bitcoin network for a variety of operations. It is used in Bitcoin mining as the proof-of-work algorithm and it’s used in the creation of Bitcoin addresses. It improves not just the security of the Bitcoin network but also assures privacy.
The Bitcoin miners need to find a hash number to get their bitcoin rewards. They find this by inputting data including all the current transactions which fit into the block size limit the previous block’s hash results and the nonce into the SHA-256 hash function. The SHA-256 algorithm is also used to create private keys- a 256 bit long string of numbers and letters used to prove ownership of a Bitcoin.
Cryptographic Public And Private Keys
A private key is the way of showing ownership and is your way of saying this Bitcoin wallet address is mine and I have access to it. A private key allows the user to authorize a transaction on the blockchain network. It’s important to note that coins are stored on the blockchain and not within your private key. On the other hand, the private keys are stored in wallets and therefore coins are not stored in a cryptocurrency wallet.
For every private key that exists in Bitcoin there’s a one-to-one relationship with a public key. Therefore, every public key is also 250 bits long. The final hash of your wallet address is 160 bits long in Bitcoin. The private keys produce a public key via an Elliptical Curve Digital Signature Algorithm or ECDSA. As it’s an asymmetric cipher the public key cannot be reverse engineered to produce its corresponding private key. This is what makes it so secure.
Do You Need A Cryptographic Degree to Understand Cryptocurrencies?
Bitcoin involves so many different things such as Hash rates, Mempools, Smart Contracts and algorithms which makes a common person believe it’s way more complex and requires a special degree to understand.
“Bitcoin can seem pretty baffling at times. After all, it’s currency built on mathematics. Of course you need a degree in quantum physics to understand it, right? Wrong.”
Does Tom Brady have a degree in quantum physics? DJ and hotel heiress Paris Hilton have a finance degree? No, yet they are reaping the benefits of cryptocurrency investments for a long time. That’s because when you scratch the surface, you soon find that everything you need to benefit from crypto is right there.
Like all technologies we use every day, there’s a lot of complexity in the background when it comes to crypto. With Google Maps, you have a complex network of satellites and machine learning algorithms aggregating location data, historical traffic patterns, and other information.
This is pinged between servers and eventually ends up on your phone. Do you need to understand everything that goes on to get directions to your friend’s house? No.
You may not know how cloud computing or even how your router works, but math majors aren’t the only people FaceTiming their friends. Bitcoin is built on blockchain technology, a distributed ledger that records transactions. It’s created by miners, who use advanced hardware to solve complex mathematical puzzles. It’s certainly useful to understand how all this works in detail to give you a real idea of its power before you invest.
But the truth is, how cryptocurrency works from a technical perspective is far less important than how you can use it to your benefit and the positive impact it could have on society. Bitcoin is the foundation of a global financial system that’s fairer, more transparent and more efficient. It’s a store of value, a hedge against inflation, a safe and easy way to transfer value around the world quickly. Bitcoin is for everyone to benefit from. It doesn’t require a math degree to use, or a finance degree to invest in.
Where Actually Crypto Coins Are Stored?
You might think that cryptocurrencies are stored in a wallet. The answer might surprise you. The coins are not stored in a wallet. All blockchain networks store cryptocurrencies on blockchain. Only the keys are stored in wallets which show the ownership. The owners use these keys to access their coin on the blockchains.