Cryptography: The Secret Behind Cryptocurrencies

You may have heard of Bitcoin and other cryptocurrencies, but do you know why they're called "cryptocurrencies"? The term "crypto" comes from "cryptography", a collection of techniques that secure information and communications. In this article, we'll explain how cryptography is crucial to the functioning of cryptocurrency in layman's terms.

Understanding Encryption and Decryption

Imagine you want to send a message to someone, but you want to make sure that if it's intercepted, the person who intercepts it won't be able to read it. How would you do that? You'd use encryption.

Encryption is the process of turning a plain text message into something unreadable, called ciphertext. For example, you could replace each letter in the message with the letter two places ahead of it in the alphabet. So the word "cat" would become "ECV". The receiver would then use a cheat sheet to decrypt the message and read it in its original form.

In the world of computers, encryption has become a highly sophisticated process, with many methods available to encrypt and decrypt information. Cryptography is essential to cryptocurrency because it ensures that transactions are secure and can't be tampered with.

Hashing: One-Way Encryption

While encryption allows ciphertext to be decrypted back to plain text, hashing is a form of encryption that only goes one way. Once data has been hashed, it can't be unhashed. A cryptographic hash takes any length of text and converts it into a fixed-length output that is unrecognizable.

For example, you could take this entire article, put it through a hash function (an algorithm), and get an output that is just 64 characters long. The same input will always produce the same output, but you can't reverse the process to get the original input from the output.

Bitcoin uses a specific hash function called SHA-256 (Secure Hash Algorithm 256). This is used for the proof-of-work process, as well as for compressing data in a blockchain. The idea is to keep the size of the blockchain manageable and improve its performance.

Unbreakable Chains

Hashing is crucial in creating an unbreakable chain between sequential blocks in a blockchain. Each block's hash is combined with the contents of the next block and hashed again. If a previous block is altered in any way, its hash changes, and the next block won't recognize it, rejecting the change. This ensures that the data in the blockchain remains secure and unaltered.

In Conclusion

Cryptography is at the heart of how cryptocurrencies work. It provides essential functionality that ensures transactions are secure and can't be tampered with. With the use of encryption and hashing, transactions are written and locked into an unchangeable database, giving participants confidence that transactions are legitimate.