What is cryptography and what does it have to do with crypto?
If you’ve ever typed “what is cryptocurrency?” into a search engine you’ve probably come across the term cryptography. And you’ve probably learnt that it secures crypto - but what exactly does that mean? And how does it do it? Let’s find out.
Cryptography is the practice of sending secure, encrypted data between two or more parties. Encryption describes the process of making data unreadable to unauthorised users - it protects data by encoding it so that its content is obscured to a third party.
In crypto, cryptography allows digital currency transactions to be anonymous, secure and trustless. This means that you can safely make transactions with someone you don’t know without the need for a trusted intermediary such as a bank.
In order to encrypt data, a key is required. No, not the metal kind - cryptographic keys are made up of code.
Private keys vs public keys
Keys play an important role in cryptography. They help prove that a transaction was authorised by the owner of the funds, and not forged.
A key is a string of letters and numbers that is used to encrypt (lock) and decrypt (unlock) data. The complexity and length of a typical key ensures a high level of security, as it would be very difficult to guess.
You may have heard mention of private keys and public keys before. So, what’s the difference?
Most crypto wallets generate their own private key – they grant the user ownership of any funds associated with the corresponding address. It’s important that you keep your private key a secret.
Public keys, however, can be shared publicly. They always come paired with a private key, as together they create an even more secure method of encryption.
This cryptographic system is what cryptocurrencies are built upon. But what’s it all about?
Symmetric encryption vs asymmetric encryption
Symmetric encryption (aka ‘secret-key encryption’) is a simple method that uses a single key to both encrypt and decrypt information. The problem with this method, however, is that the one key must be shared between the sender and recipient. This raises the question of how a key can be shared safely and securely.
Asymmetric (or ‘public-key’) encryption aims to address this issue. It uses a pair of keys - one public and one private. The public key is used to encrypt the information and the private key then decrypts it. So, anything that’s been encrypted with the public key can only be decrypted with the associated private key - and vice versa.
This means that while the private key should still be kept private, the public key can be shared openly without compromising security.
The ‘crypto’ in cryptocurrency
Cryptocurrency uses this method to encrypt and decrypt transactions. In order to receive crypto from someone else, you need to share your public address, which is a shortened version of your public key. Your private key is then required to ‘unlock’ it and prove that you’re the owner of the newly-received crypto.
Public-key cryptography is what puts the ‘crypto’ in cryptocurrency. It ensures that transactions are verifiable, counterfeit-proof and cannot be undone. Sounds like a pretty solid system to us.