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Blockchain technology is known for its high level of security. But how does this decentralized system work without the backing of a central authority? It’s a question that has intrigued many over the past decade, especially considering that Bitcoin, one of the most popular cryptocurrencies built on blockchain, has never been hacked. It’s important to note that a user’s security details being compromised are not the same as the Bitcoin Protocol or Network being hacked. So, what makes blockchains so secure? The answer is cryptography, which plays a crucial role in the security of cryptocurrencies like Bitcoin.
What is Cryptography?
Cryptography is a technique based on computer algorithms that protects data and information. It ensures that only the intended recipient(s) can access the content of a message. Cryptography achieves this by converting information or messages into an unreadable format using mathematical algorithms, making them secure across various communication channels.
Despite popular belief, many cryptocurrencies and blockchains operate on public blockchains, which do not have centralized servers or high-tech firewalls. Furthermore, they operate on peer-to-peer networks, which one might assume are vulnerable to attacks. However, the combination of blockchain technology with cryptography has brought a revolution in security in the 21st century.
Cryptography Standards in Blockchain
Let’s explore the four main cryptography standards:
- Confidentiality — This standard safeguards the privacy of private messages by preventing unauthorized access.
- Data Integrity — It ensures that no one can alter the data, information, or messages during transit or storage.
- Non-repudiation — The encryption process attaches a digital signature to the message, making it impossible for the sender to deny sending it.
- Authentication — Cryptography enables the sender and receiver to confirm each other’s identity, verifying the message’s origin and destination.
Symmetric vs. Asymmetric Cryptography
Cryptography comes in two types: symmetric and asymmetric. Symmetric cryptography uses a single key, while asymmetric cryptography uses two keys, making it more secure. Most blockchains employ asymmetric-key cryptography, which people also know as public-key cryptography. Asymmetric cryptography uses a public key and a private key, which are permanently linked.
You can share the public key, but you must keep the private key secret to prevent unauthorized access to encrypted data. Sharing your private key can lead to losing funds in cryptocurrency transactions (e.g., Bitcoin, Ethereum). Think of the public key as your email address and the private key as the password to your email. You can use your email address (public key) to send messages and receive funds on platforms like PayPal, Binance, and TransferWise.
However, sharing your email password is risky, and the same goes for sharing your private key. Strangers could gain access to your personal information and digital identity, which could lead to fraud. While public and private keys are more complex and secure than email, this analogy helps in understanding the concept. In summary, you should use a public key publicly, while a private key should remain confidential.
The Role of Cryptography in Cryptocurrency
Cryptocurrency is a prime example of public-key cryptography in action. Cryptocurrencies allow you to send and receive funds without third-party verification, like banks. To receive cryptocurrency, you share your wallet address, which is linked to your public key. The sender sends the funds to your address, and you need your private key to access them. It’s crucial to protect your private key because anyone with access to it can access any cryptocurrency associated with it.
Many people have been using cryptocurrency for years without knowing the behind-the-scenes mechanics. Your cryptocurrency wallet, which can be mobile, desktop, web, or hardware, stores your private keys. If you store your cryptocurrencies on exchanges likeBinance and Coinbase web wallet, the exchanges act as custodians of your private keys. However, if you use a hardware wallet or other non-custodial wallets, you have control over your private keys.
Private keys are long strings of letters and numbers, making them prone to transcription errors when used for digitally signing transactions. To address this issue, many wallets employ seed phrases as an alternative to private keys. Seed phrases are secret recovery phrases or mnemonic seeds that consist of 12 to 24 words derived from the BIP 39 standard word list. They simplify the management of private keys by reducing the risk of errors. When you enter the seed phrase correctly, the wallet uses your private key to digitally sign the transaction, just like if you were using the private key directly. Seed phrases vary among wallets, but they are often easier to remember or store compared to a long string of letters and numbers (private key).
Cryptography empowers blockchain and cryptocurrency transactions with security through cryptographic hash functions, creating hash values. This combination of cutting-edge technology ensures that the blockchain ecosystem is secure, reliable, and impenetrable. For malicious actors to breach this decentralized network, they would need an astronomical amount of computational power and countless attempts. Beyond the blockchain world, cryptography is also finding use in other fields, such as digital rights management, e-commerce, information security, and military and intelligence. With its numerous benefits, cryptography is quickly becoming an essential for ensuring secure transactions and protecting sensitive data.
Blockchain is the future, and it is impressive to see Identity.com contributing to this desired future through the Solana ecosystem and other Web3 projects. Also, as a member of the World Wide Web Consortium (W3C), the standards body for the World Wide Web.
Identity.com, as a future-oriented company, is an open-source ecosystem providing access to on-chain and secure identity verification for businesses, giving their customers a hassle-free experience. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. Please refer to our docs about how to help you with identity verification and general KYC processes.