Cryptography: The Backbone of Blockchain

We have seen the emergence of disruptive technologies that can revolutionize several various business models over the years. Blockchain Innovation is one such groundbreaking technology that finds its origins in cryptography. Cryptography is a common technology in cyber-security and has become part of economics, a concept known as Cryptoeconomics.

This article provides an overview of the core concepts of Cryptography and Blockchain. It also explains the cryptographic hashing functions that provide Blockchain with its impressive security system. We also discuss the key technologies that power the blockchain.

Outline

The article is organized as follows:

• Cryptography
• Cryptocurrency
• Cryptoeconomics
• Blockchain technology
• Blockchain security mechanism
• Exploring Hashing Algorithms Deeper
• Cyber-security on Blockchain
• Conclusion

Cryptography

It is no mere happenstance that cryptography and cryptocurrency share the same term, “crypto,” meaning “secret.”

Cryptography is a means to safeguard digital assets with the help of encryption. This process involves digital coding items such as messages, audio/video files, cryptocurrency, or documents so that only authorized parties can access them.

If an encrypted asset is intercepted by an unauthorized person, it will remain securely locked away as long as unlocking it is impossible. Decryption is the process of reversing encryption; it enables the user to turn inaccessible digital assets into readable or usable forms. In essence, cryptography is a reliable way to transmit and receive digital assets.

For example, Japan made use of the 8 “i-ro-ha” Alphabet, 1-7 “Checkerboard” Cipher for cryptography from the 1500s to the Meiji era (October 23, 1868, to July 30, 1912). As such, these codes remained secure as those without an understanding of the checkerboard system (Polybius Square) would be unable to decode the encrypted message.

In the context of this article, the messages are called public keys, and the decryption methods are called private keys.

Cryptocurrency

Cryptocurrencies are digital assets created to facilitate the exchange of electronic cash (and other assets like NFTs) using highly secure cryptographic keys. To prevent the jeopardizing of electronic cash, these cryptographic keys must be virtually impossible to figure out or break.

To maintain the security of funds, transactions, and the creation of new funds, the private key mechanism of cryptocurrency must remain safe from deciphering.

A popular example of cryptocurrency is Bitcoin. Bitcoin was invented in 2008 by Satoshi Nakamoto (A pseudo name of a person or persons behind the development of the Bitcoin) with the publication of a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System.” However, the actual complete open-source software was released a year later, in 2009.

Bitcoin is a digital currency that is transacted through the Internet, which utilizes a globalized ledger known as the Blockchain. This form of money combines the features of BitTorrent peer-to-peer file sharing with public-key cryptography.

Cryptography techniques are implemented to regulate the production of cryptocurrency units and authenticate the transfer of funds.

Cryptoeconomics

Cryptoeconomics offers a secure and scalable means of carrying out cryptocurrency transactions. It uses the idea of decentralization, which involves multiple computers to complete a process rather than one.

Cryptoeconomics also applies cryptographic techniques and cryptographic keys to digital financial assets to ensure safety and reliability. Through the use of cryptographic hashing functions, financial assets are protected and can be scaled efficiently.

Blockchain Technology

Blockchain technology is the basis of Bitcoin and other cryptocurrencies like Ethereum.

A blockchain is a distributed and decentralized ledger that consists of a series of blocks. As a data structure, each block contains records and transactions that are accessible but untraceable to all computers in the network.

The blocks are added to the blockchain in an organized, chronological order. A group of computers that connect to a cryptocurrency network and verify and relay transactions is called a peer or node. Every full node in the blockchain contains an identical copy of the blockchain, which will be automatically downloaded when a miner connects to the network.

The blockchain is a complete record of addresses and balances from the first transaction to the most recent. Furthermore, the blockchain's public ledger allows anyone to search for transactions associated with a certain Bitcoin address quickly. For example, computers in the network can retrieve their first transaction through their wallet address.

Blockchain Security Mechanism

Every digital asset on the Blockchain is identified through a cryptographic hash value calculated using the “SHA256” algorithm. “SHA” stands for “Secure Hash Algorithm,” and 256 represents the total number of bits the algorithm consumes in memory.

Blockchain Security relies on Cryptographic Hash Functions, a special family of functions with unique properties.

Every digital asset is assigned a hash value. The value can be derived from the asset, but not the other way around. A hashing algorithm generates this hash value, which remains unchanged as long as the asset content is immutable. If the asset content is altered, the hash value changes instantly - an effect dubbed the Avalanche Effect. A collision is said to have occurred if a generated hash value is the same as an existing value. To protect data security and integrity, it is critical to prevent such collisions. This makes the hashing algorithm Collision Resistant.

For instance, if a digital asset named file.txt is to be hashed and sent through the Blockchain, the hashing algorithm will derive a 64-bit hexadecimal hash value for the file through a hash function.

Exploring Hashing Algorithms Deeper

Hashing takes in string inputs of varying lengths and produces an output of fixed length. This is used to maintain the structure of the database ledger data (or Blockchain) through the SHA256 hash generator.

These hashing algorithms are also put to use to create math puzzles that computers try to solve for a reward. When the puzzle is solved, the computer is chosen to help with the transactions.

In addition, hashing keys are used to make account addresses.

Merkle trees break down vast amounts of data into smaller components by using hashing keys, which is advantageous for lightweight wallets needed on hardware with limited resources, such as smartphones.

Cyber-security on the Blockchain

The Confidentiality, Integrity, and Availability Triad are three important aspects of Cybersecurity. Confidentiality protects digital information so that it is not visible to those who are not authorized to access it. Integrity safeguards data from unauthorized modifications. Availability is the assurance that access to data is reliable and prompt.

When it comes to Blockchain technology, incorporating the CIA security triad model involves:

• Maintaining the privacy of transaction history, so it is not accessible to third parties.
• Encrypting transactions of companies that employ cryptocurrencies as a payment system.
• Defending digital assets from corruption due to configuration errors, software defects, or espionage attempts.
• Ensuring all transactions are available, such as entries of business activities, asset entries, and supply chain management records.

Conclusion

This article delves into the concept of cryptography and sheds light on the fundamentals of cryptocurrencies and blockchain technology.

A glimpse into the security mechanism behind blockchain technology was provided in the section covering hashing algorithms. In the end, readers were informed about critical areas where Cybersecurity practices can be applied to strengthen the blockchain.