The blockchain is indulged with the distributed ledger in which every single transaction is distributed to the entire ledger. Transaction made peer-to-peer integrate with the cryptography which makes sure of liquidity. A transaction made to someone will reflect in the public ledger. But the integrity of this blockchain system working along the cryptography encrypts the person’s identity. Hence you can’t know who the sender was or to whom he made the transaction to.
So a transaction made with cryptocurrency gets encrypted with cryptography. Where a key or special algorithm is needed to unlock or see the information inside it. So what is this cryptography? and why we need it?
What is cryptography?
It is an established method of sending something (data) fully encrypted which can only be readable or decode with a specific unique key or algorithm (to unlock it).
The word cryptography came from Greek words; ‘Kryptos’ and ‘Graphein’ – which means ‘Secret’ and ‘Writings’.
The above image explained how a message is first encrypted and send to others. The message can only be decrypted by using a specific key or algorithm.
Why do we need cryptography in cryptocurrency?
As I’ve mentioned above in text that a transaction on blockchain is all person-to-person(P2P) and fully anonymous. Isn’t that sound cool?
Cryptography draws underline of how blockchain work and support it to run well. Some of the function defined in the cryptography is useful for the blockchain. Two of them include the ‘signature’ and the ‘hash’.
The signature or a Digital signature allows a user to hide a information by actually a secret key which tells that the information belongs to that person. In cryptocurrency, the Digital Signatures are used to sign the ledgers which allow a user to prove the ownership of the account he is holding.
The hash holds the information, it takes up long data and turns it into some random word, letter or number. Hash hold the person wallet balance, information of how the transaction going to execute and generates a puzzle for the miners to solve, verify and get reward made possible.
The Bitcoin is amongst the first digital cryptocurrency using the cryptography to make anonymous transactions to anywhere anytime without having middlemen or organisations in-between.
Bitcoin makes use of the cryptographic hash function SHA256, which stands for Secure Hash Algorithm 256-bit.
But the ledger of bitcoin and many other cryptocurrencies are public!?
Yes, it is the transactions are publically distributed on the entire ledger of the blockchain– and it’s important too. But you cannot know the person’s identity and to whom he made the transaction to.
Here you can look at one of the examples of bitcoin public ledger.
When someone sends a transaction through blockchain, this transaction is verified by network nodes (these are the miners) through the use of cryptography with the recorded in a public distributed ledger.
The mines, which are the physical computers – get the reward for solving/verifying the transactions made on the blockchain. This verification of the transaction on blockchain is called POW(Proof-of-work).
Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.
If you are holding a certain amount of bitcoin in your wallet, they are simply the collection of these keys which are cryptographic itself by the blockchain.
The Ethereum Blockchain Cryptography
Ethereum is very similar to Bitcoin, it extends the differs in the mining technique and the block size too. Bitcoin where is just a simplified coin system, on the other hand, ethereum technology is used by the various company to establish their ledger on it. ICO(Initial coin offerings are majorly built upon ethereum blockchain technology).
Cryptography in ethereum blockchain is similar to that of bitcoin.Etherum uses Cryptographic hash functions to secure the block working in the blockchain.
For more technical words its uses SHA3 to organize block data, as part of the mining algorithm, and for encoding transactions and user accounts.