So you’ve been into bitcoin since before it skyrocketed in 2017, participated in several airdrops with the hopes of seeing the next coin go ‘to the moon!’, and you or somebody you know (even if it’s from social media) cashed in on your crypto investments by purchasing a shiny Lambo. If that’s at all close to you, or you’re at least familiar with those crypto culture cliches, chances are you’re a crypto enthusiast, a HODLer, maybe even a FUDster, so a crypto kid, no doubt. But do you know what the “crypto” in cryptocurrency is?
If that’s so, and you clicked the title of this article, I guess we both know it’s about time to stop just blankly answering “cryptography” when someone asks what’s the ‘crypto’ in cryptocurrency. Now’s the time to get a bit better-versed in the art of cryptography, what it is exactly, what’s the purpose of having all those keys, how they work, what’s a hash, and the relation of it all to digital currencies and blockchain technology.
In the interest of time and money, we’ll try to keep it short. We’ll start with an overview of the terms that you need to grasp in order to better understand how a bitcoin transaction works, and then do a little walkthrough of how this happens within a blockchain.
Encryption and Beyond (and where the “Crypto” in Cryptocurrency comes from)
Cryptography or cryptology, from the ancient greek kryptós (hidden, secret), is merely a series of techniques for secure communication. The word “secure” implies the presence of a third party trying to breach that security, so cryptography, generally, is always about constructing protocols that prevent others from reading private messages.
In this sense, cryptography has been around since the times of the ancient Egyptians and Julius Caesar. Although, up to modern times the term referred almost exclusively to encryption. This is the process of converting a plain and legible message into an unintelligible cypher text. In order to decipher such text, one simply needs a key; a single word or string of characters that decrypts the whole text. In case you’re not familiar with it, here’s a fun little example of Caesar’s Cypher.
Eventually, with the advent of computer science, cryptography went from linguistic and lexicographic patterns to far more complex use of mathematics. In other words, encryption went from using a key to using specific algorithms. Far more secure than using the same key to decrypt several messages between two or more parties, new technologies allowed us to develop random algorithms that change each time a message is delivered.
These algorithms are divided into several subcategories, of which the ones that are mainly used in cryptocurrencies are:
- Symmetric: A single key is used to both encrypt and decrypt the data.
- Asymmetric: There are two keys, one is public, the other one is private. These work in synergy, where something encrypted by one of them can only be decrypted by the other.
If you’d like to know more about those two, this is a nice and quick guide to some of the algorithms used in cryptography.
Of all those, the one we should explain in more detail is Hashing. No, not that kind of hashing, but something like that long string of characters you get when transferring BTC to a buddy. The cool thing about hashing is that it only goes one way. Meaning that, while encryption can be decrypted, something that is hashed is never “dehashed”. Hopefully that better explains the “crypto” in cryptocurrency.
Public Keys and Digital Signatures
Along with the encryption methods we explained above, keys and digital signatures are the building blocks of the magic behind cryptocurrencies. The use of asymmetric cryptography is why you have both a public key and a private key in bitcoin.
Haseeb Qureshi explains it quite well through this introductory article on Public-Key Cryptography when he says that your public key is like your username; “You can share it with anyone, and people will use it to publicly identify you.” Your private key, if we stick to that example, is like your password. It’s the one thing that ties your public key to you and you alone. If it’s leaked, other people could impersonate you.
Your key pairs, in this sense, are your identity when it comes to using Bitcoin. These are inherently unique to you (Haseeb’s article explains just how unique), and give you an unforgeable identity within the space.
To make matters even more secure, most cryptocurrencies also operate with a cryptographic concept that goes beyond the public-key cryptography explained above: Digital Signatures. This is proof that the owner of a private key “signed” the piece of data tied to that key. For it to work on a cryptographic level, a digital signature needs to be publicly verifiable (if the other party has your public key), unforgeable (without the private key), irrevocable (there’s no denying that a signature came from a particular private key), and solely bound to that particular message.
That means that a single message, like a transaction, will have a unique signature. That signature is tied to a private key, which in turn can only be verified using your public key. In bitcoin, this is what proves that the signer of a transaction approved it, all the while maintaining full secrecy of their private key.
How does all this work with a blockchain?
Still here? Now, this is where it all comes together. Both bitcoin and ethereum use a specific branch of cryptography called elliptical curve cryptography. For a full explanation of why that one was favored over other cryptographic models, check out this article from Block Geeks.
In brief, elliptical curve cryptography means that when someone sends you BTC or ETH over a blockchain, they send that amount to your public address (one of them at least), which is basically a hash of your public key with some additional data.
To Sum Up
As you were probably able to grasp, one would need several months, if not years, to fully go down this rabbit hole and understand the full meaning of cryptography within cryptocurrencies. If you wanted to fully understand it for bitcoin, for instance, you’d probably have to read Satoshi’s paper in full.
Fortunately, while you don’t have to be a cryptography expert to be a crypto enthusiast, understanding the basic concepts of public-key cryptography (as you hopefully do by now) will increase your ability to vet new crypto and blockchain projects, and enjoy your journey through this wonderful medium even more.