How Blockchain Cryptography Works: Are Crypto Transactions Really Secure?

Blockchain Cryptography
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You are probably thinking to invest in crypto. You want to be able to hold it in a personal wallet and use it for your transactions. But here it goes… The classic question of doubt comes to your mind: “Is crypto transactions secure?” To answer that, one needs to understand how the underlying technology of blockchain cryptography truly works.

From the first time someone wants to make a transaction with bitcoin, two (cryptographic) keys are “born” on his behalf. The private and the public. Each key is a mixture of numbers and letters. Only the owner knows the private key which is his personal identity. The public key is created based on the private. Its owner utilizes it to send and receive money. There are special public key servers, to which one can turn to find the public key of the user who wants to send money or upload his own public key to become available to the public.

Knowing the public encryption key does not, in any way allow the calculation of the private encryption key. But these two keys (private and public) have a mathematical relationship. The first key encrypts the transaction message and the other decrypts it.

Blockchain Cryptography: How do these two keys really work?

For example, the availability of an amount for purchase is encrypted and “sealed” by the private key with the characteristics of the sender. From his public key, which is a whole “train” of digits, after compression and shortening, the so-called “public address” of each individual emerges. In other words, we have the following: Private key > Public key > public address.

The two traders have communicated to each other essentially only their public addresses and nothing else. These play the role of the account number used in banking. In a way, the private key is a bit like the PIN. Combining the two, it is possible to achieve confidentiality of the message and certification of the sender.

On the one hand, the message remains known only to the sender. On the other hand, the recipient knows with certainty who sent him the message. To achieve this, the sender can encrypt the message first with his own private key and then with the recipient’s public key. When the recipient receives the message, he should use his private key to decrypt it (confidentiality) and then, using the sender’s public key, make sure that he was the one who sent the message or the amount.

It is important to mention that programmers can write a private smart contract in an intuitive manner without having to necessarily implement cryptography. Since smart contracts handle and transfer assets of considerable value, besides their correct execution it is also crucial that their implementation is secure against attacks that aim at stealing or tampering with the assets. They use compilers that automatically generate an efficient cryptographic protocol where contractual parties interact with the blockchain, using cryptographic primitives such as zero-knowledge proofs. To formally define and reason about the security of the protocols, they first formalize blockchain cryptography. The formal modeling is of independent interest, designing applications atop decentralized blockchains.

How was blockchain cryptography introduced?

Although it has been almost 12 years since blockchain cryptography was discovered and the first Bitcoin was released on the internet, there are still many questions not only about the technical aspects of its operation but also about its origin. Who inspired the first cryptocurrency blockchain cryptography and what did it want to achieve with its creation?

Legend has it that the creator of Bitcoin is the mysterious Japanese Satoshi Nakamoto. Although probably a pseudonym, Nakamoto created the domain and website in 2008. He later published a guide entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”, which was the book on the first cryptocurrency. At the beginning of 2009, the first Bitcoin network became a reality with the “extraction” by Nakamoto of the primary –Genesis– block.

Nakamoto’s disappearance was as a genius and mysterious as the technology he (most likely) created. In 2011, Nakamoto withdrew from cryptocurrencies with an e-mail stating “From now on I will deal with other things”. Some as a billionaire, some without touching the one million Bitcoin stored in digital wallets once controlled by him.

As you can see, the Internet cannot allow this to happen and not make to search for the true identity of the creator of such a revolutionary technology.

The top 3 candidates (according to the Internet) behind Satoshi Nakamoto’s nickname are Dorian Nakamoto, Craig Wright, and Nick Szabo.

blockchain cryptography

Is Cryptocurrency Safe?

Despite the fact that Bitcoin transactions aren’t private, that doesn’t mean every user can see exactly how much everyone else has bought or sold. News reports make it clear that cryptocurrency investors are subject to scams and hacker attacks on a regular basis. Some of these losses occurred years ago in cryptocurrency exchanges. They did not implement modern security measures for the money they stored for their customers. Others are due to software bugs in specific applications, especially Defi (decentralized finance) applications.

Despite an increase in fraud and theft, many experts tout the safety of Bitcoin investments — at least in terms of cybersecurity if not investment stability — thanks to secure blockchain technology.

Most major cryptocurrency platforms work with payment processors to accept instant purchases via Visa or Mastercard. This is an important advantage for the industry, as it allows everyday users to buy Bitcoin or Ether using a system they are already familiar with. Cryptocurrency exchanges and third parties offer storage for your coins through hot wallets, which are secure, but still online (and therefore still susceptible to hacking).

Purchasing by card is better than bank transfer because you do not have to wait days. On the other hand, buying cryptocurrencies with a credit or debit card can mean that you pay a commission to your card issuer and a service charge on the platform you use. Entering all the required data can be tedious and some banks require an additional confirmation step before approving the transaction.

Blockchain cryptography allows the transaction to be executed automatically and without the slightest human intervention. Experts in the field call it “Distributed Universal Technology” and describe it as an accounting book that records peer-to-peer transactions. This book, however, is not stored in a central location but in a public and user-friendly database. Using cryptography technology ensures the legality of the transactions, and allows their verification. It also prevents the possibility of duplicate registrations, while at the same time maintaining the anonymity of the traders.

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