Such assets as Bitcoin and Ethereum made cryptocurrencies popular among the world. They are highly valued for decentralization, their anonymous nature, and peer-to-peer architecture, which allows for transactions around the world. These digital assets do not belong to any state, and they are not regulated by governments and banks.
Everyone has heard about cryptocurrencies, but what exactly does ‘crypto’ mean? How is this system controlled without intervention? Let’s discuss the concept of cryptography and define the backbone of cryptocurrency processing.
What does the word ‘crypto’ imply?
In this context, ‘crypto’ means anonymous. Cryptography is the process of data coding, which restricts access to it. Depending upon technologies used, cryptography can guarantee full or partial anonymity. It also ensures total security of transactions and participants, and independence of operations from any central authority, as well as double-spending.
Cryptography can be used for different purposes:
- Performance of anonymous transactions;
- Securing of data;
- Control over the generation of new tokens.
When one performs real-world transactions, their signature is required, but it can be forged. Cryptocurrencies emulate the concept of real-world transactions by using the encryption keys. The advanced mathematical methods ensure the authenticity of deals.
How does cryptography work?
When you listen to the radio, or use your smartphone as a router, the broadcast is public and available to everyone. On the contrary, cryptography allows protecting communication by securing and encrypting messages. In cryptocurrency, it works the same way.
When generating a message, users encrypt the data by using a key and an algorithm. The receiver decrypts the message to see its contents by using the same algorithm. Thus, encryption makes the data unreadable for any unauthorized recipient or reader – it can only be valuable to the intended recipient.
In some cryptocurrencies like Bitcoin, the information about transactions is partially open to the public. Other assets, for instance, QTUM crypto, Monero, ZCash, and many others, are created for fully anonymous transactions.
Thus, the tools found in cryptography were applied to cryptocurrencies, as well. Those include hashing and digital signatures – essential parts of the Bitcoin system, even though it did not leverage hidden messages.
Cryptography methods utilized in cryptocurrency
There are several encryption methods originating from cryptography.
- Symmetric encryption cryptography. In this case, the same secret key is applied to all tasks (encryption of the sender’s message, transmitting of the data, and decryption by the recipient). Unauthorized users will not be able to decrypt the message without knowing the encryption methodology. This method is useful but has some drawbacks: shared key security and scalability issues.
- Asymmetric encryption cryptography. In this case, two keys are used: public and private. The public key is publicly available (address of the fund receiver), while the private key is known by its owner only. The last is used to decrypt messages. This method allows for the implementation of authentication and encryption for crypto transactions.
- Hashing. This method allows for verifying the integrity of data transactions in the system. It keeps the structure of the blockchain data and encodes personal account details), and implements block mining. During this process, digital signatures can also be leveraged to help users prove their identity to the network.
In cryptocurrency networks, different methods and their combinations are implemented – they can be united and customized.
Are you new to the world of cryptocurrency? Before planning to buy some Ethereum or checking ENJ price, you should at least know how these cryptocurrencies and other similar assets work. Hopefully, this guide helped you understand the basics of encryption and cryptography, the essential parts of all cryptocurrency networks.