What is Cryptography?
How is cryptography used in cryptocurrency
Cryptography is a way of protecting data, information and communications through specific codes that can only be read by other parties that understand said code.
Cryptographic concepts provide the basis for all cryptocurrencies. In 2009, a person (or group of people) using Satoshi Nakamoto's identity created Bitcoin. They submitted the notion as a white paper to a cryptography discussion board.
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The history of cryptography
Users were concerned about security when the commercial Internet became available in the early 1990s.
While some thought that increased security reassured paranoid people, most IT experts recognized that it provided necessary safeguards for everyone.
There was little discussion of cryptography or public access to it. Of course, by the turn of the century, the Internet had become the primary means of communication for billions of people worldwide.
It is also a common way to do business, connect with people, and share more and more personal information. Security and privacy concerns affect many applications, from private communications to protecting sensitive health records.
Cryptography is an integral part of ensuring that messages are safely sent and received. Of course, while cryptography is necessary for secure communications, it is not sufficient in and of itself.
So, you should know that the steps listed here are just the beginning of what needs to be done to make security better in different situations.
Definition of Some Cryptographic Concepts
Encryption is the transformation of plaintext (regular text) into ciphertext (random sequence of bits).
Decryption converts plaintext to ciphertext, which is the opposite of encryption.
Cipher: A cryptographic algorithm or mathematical function that transforms plaintext into ciphertext.
Key: A small amount of data is necessary to cause the cryptographic algorithm's output.
Types of Cryptographic Algorithms
For this encryption technique, only one key is used. The same shared key can be used for both encryption and decryption.
The problem of securely transferring the key between the sender and the receiver arises when using a single common key. Another name for it is secret-key cryptography.
This kind of cryptography ensures that both the sender and receiver know the key.
Symmetric-key cryptography may be broken down into two categories: block ciphers and stream ciphers.
The keys in stream ciphers frequently change because they operate on a single bit at a time. On the other hand, block ciphers encrypt one block of data at a time, as the name implies.
In this case, though, the same block of plaintext will always be turned into the same ciphertext.
An encryption key and a decryption key, designated as the public key and private key, respectively, are used in this encryption technique.
The key pair produced by this algorithm comprises a private key and a unique public key also made by the algorithm. It also goes by the name "public-key cryptography."
When the environment is constantly changing, and data is transferred between various communication partners, asymmetric cryptography is used.
Its high scalability is the cause of this. When using this type of cryptography, one party generates the secret key and encrypts it using the recipient's public key. Using their private key, the recipient can then quickly decrypt it.
The secret key will be used as the encryption key for the remainder of the communication once the connection has been made.
In contrast to symmetric keys, the issue with asymmetric keys arises when the public key must be authenticated. Any malicious third party has the potential to alter the public key.
But using public-key infrastructure, this issue can be resolved. The ownership of the keys is verified using this method by certificate authorities, another third party.
The "web of trust" technique is another one that can be used to guarantee the authenticity of the key pair.
This type of encryption doesn't require any sort of secret key. It takes the plaintext and uses a cipher to create a hash value of a specific length. Recovery of plain text's contents from the ciphertext is essentially impossible.
As a result, the hash function serves as a unique code for each piece of content.
This method changes plaintext data of any length into ciphertext data of a certain length. Although hashing and encryption are not the same, the definition of a hash function makes it seem that way. The main difference between the two is that encryption needs the hash value to be decrypted, but hashing doesn't.
It works so that plaintext data is put in, and then a mathematical algorithm turns that data into something that can't be read.
The output, which serves as a unique identifier, is known as the hash digest, hash value, or hash code.
Robust hash algorithms have characteristics like determinism, resistance to preimages, resistance to collisions, good speed, and the avalanche effect (also known as the snowball effect).
Cryptographic Hashing: Data security on the blockchain?
A hashing function is a mathematical formula or function used in hashing. The input is changed into a form that is hard to understand and can only be put back together by the function.
No matter how long the input is, the output must be the same length. For instance, the SHA-256 algorithm generates a hash that is 256 bits long (or 64 characters) in the Bitcoin blockchain, which is used in the Proof of Work algorithm.
There can be no similar output from two inputs that are slightly different from one another, such as a capital letter and a small letter.
No matter how often the same input is hashed through the function, the result is always the same. Unfortunately, it's too late to turn back now. What this means is that you cannot get the input by hashing the output backward from the output.
Let's review what a blockchain is and how it works: It's a chain of blocks, and each block stores some information along with a hash or output. If the data ever changed, the hash would need to be updated as well. Also, each block is linked to the one before it because a hash of the previous block is made for each new block.
That's why if there were a data change in a single block, the resulting hash would be different for every block. Since the data in a blockchain is immutable and securely linked, this is a crucial part of blockchain data security.
Cryptography Use Cases on the Blockchain
Let's examine the uses of cryptography in the blockchain since it was previously mentioned that it is a crucial component of blockchain technology. Asymmetric-key algorithms and hash functions are the two cryptographic algorithms used in blockchains.
Thanks to hash functions, every participant has access to the functionality of a single view of the blockchain. The SHA-256 hashing algorithm is typically used for the hash function in blockchains.
The blockchain benefits from using cryptographic hash functions in the following ways:
Avalanche effect: A slight change in the input data can greatly impact the output.
Uniqueness: Every input results in a different output.
Deterministic: The output will always be the same if any input is passed through the hash function.
Rapidity: The output can be produced in a very brief period.
It can't be reverse-engineered, which means that we can't get the input from the output and hash function.
The blocks are linked to one another, and hash functions largely maintain the integrity of the data stored inside each block. Any change to the data in a block can cause inconsistency, which makes the blockchain useless. The "avalanche effect," a characteristic of hash functions, satisfies this requirement.
This means that even if we change the input to the hash function just a little, the result will be very different from the first result. Below, let's compare the outputs of an SHA-256 hash function as an example.
Cryptography and the Blockchain Consensus Protocol
Proof of Work
Bitcoin was the first to use the proof-of-work method of transaction verification. The blockchain's blocks each have their own unique hash code. Every block in the blockchain must contain a hash function for this proof-of-work mechanism. The proof of work portion is manageable, but the hash generation is challenging. The miners carry out this generation phase to address various puzzle types. They create a hash, compare it to the block's hash, and determine whether it is less or equal.
If it is lower or the same, it shows that the transaction went through without being tampered with. Because there is competition in this process, the miner who generates the hash first receives a reward and a transfer fee. The process of verification is referred to as "proof of work." One miner can generate the hash, and another can verify it simultaneously. The SHA-256 hash function algorithm is used in the bitcoin transaction process to create hashes with a fixed length of 64 bits.
Proof of Stake
Proof of stake (POS) is a consensus mechanism used by blockchain networks to achieve distributed consensus, validate cryptocurrency transactions, and stake coins or set them aside for selection as a validator at random.
Proof of Stake is an alternative to Proof of Work, which was the first cryptocurrency consensus mechanism. Proof of Work was based on "mining."
However, because proof of stake has proven far more energy-efficient, it has become popular as attention has shifted to how crypto mining affects the environment.
Below is a sharp contrast to help you understand.
Proof of Stake vs. Proof of Work
Proof-of-work (POW) and proof-of-stake (POS) are ways for people to agree on something. They help the blockchain network keep data in sync and keep it safe.
The POW consensus mining and validation processes consume a significant amount of energy. Because of climate change, many people believe this consensus is immoral. POW is becoming less popular because there aren't any good ways to make it use less energy.
While both mechanisms have proven effective, POS is faster, less expensive, and more efficient.
Don't just take our word for it. Even Ethereum, the 600-pound gorilla in the room, agrees and is migrating to an improved version known as ETH 2.0. More on that in a moment.
Aside from energy consumption, the fundamental difference between these two mechanisms is how they handle network duplicity.
Can You Mine Proof-of-Stake?
In exchange for the chance to validate blocks, token holders put up their tokens (or coins) as collateral. Owners of staked coins are referred to as "validators." The block is then "mined," or validated, by validators who are chosen at random. Rather than using a competition-based mechanism like proof-of-work, this system randomly determines who gets to "mine."
Solana's network uses a proof-of-stake (POS) and proof-of-concept (PoC) protocol that Solana calls "proof-of-history" (POH). Many people run programs on a specialized computer called a validator on the Solana network. These validators play a key role in the Solana blockchain. It keeps the network running, keeps it safe, and processes new transactions by voting and adding new blocks to the chain of blocks.
This means that its consensus algorithm uses votes from the pool of validators in the blockchain to make sure that everyone has the same accurate information and that the ledger is always correct.
All blocks have to have 66% of the voters agree that the transactions are justifiable to be included in the chain of blocks. But if agitators control more than 33% of voting power, then consensus would fail, and the network would be stopped.
The "Mechanism of Consensus" describes how all the validators in the network reach this point that they all agree on. This is a core requirement for building a successful decentralized network.
Proof of History (POH)
Proof of History is a system proving that transactions are in the proper order and were found by the right leader.
Solana's blockchain is subdivided into periods where a validator ingests transactions and creates a block. A validator is chosen to be a slot leader through the proof of stake mechanism based on the quantity of SOL held. Each validator is responsible for continuing a count of the passage of time, known as a "proof of history order."
Cardano is a third-generation, decentralized proof-of-stake blockchain network. It is a more efficient alternative to proof-of-work (POW) networks. The infrastructure burden of increasing costs, energy use, slow transaction times, limited flexibility, interactiveness, and durability of POW networks like Ethereum are eliminated on Cardano.
The Cardano platform uses a ground-breaking POS Ouroboros consensus protocol. It is the first blockchain network consensus to be developed through peer-reviewed research.
At the center of the protocols are stake pools, validators run by a stake pool operator to which Ada holders can delegate their stake.
These stake pools make sure that everyone can keep a node running, no matter how much technical knowledge or time they have.
Their responsibility is maintenance, and they hold the combined stake of all stakeholders as one entity.
Many view the Avalanche Consensus Mechanism as a more advanced POS. When using POS, peers must stake coins to validate transactions, and the same is true when using POS. However, the validation procedure itself is not the same.
The Avalanche POS Mechanism works like a snowball rolling down a hill. One node polls a predetermined number of other nodes, asking for their individual decisions and seeing if there is consensus on a single answer. In that case, it would be considered a consensus. A snowball, or avalanche, of queries and decisions, is created when each node queries a set of other nodes and then repeats the process. The overwhelming support of nodes is required for a decision to be adopted by the network.
In Avalanche POS, transactions can be batched and voted on collectively, rather than individually, unlike in other mechanisms. One way the Avalanche Consensus Mechanism speeds up TPS is by decreasing the time spent validating transactions.
Algorand is the first emerging Pure Proof of Stake (PPoS) blockchain that provides flexibility, security, and decentralization—all in an eco-friendly, sustainable way.
This PPoS protocol is built on Byzantine consensus and offers a more democratic approach than its predecessor, Proof of Stake (POS).
Despite the success of the proof-of-stake protocol in addressing scalability issues, they can still be controlled and manipulated by stakers with high amounts of tokens, which negatively impacts decentralization.
To address the most pressing issues of POS protocols, Pure Proof of Stake (PPoS), was initiated and developed by the founder of Algorand and renowned cryptographer Silvio Micali.
This was done to propose a more egalitarian concept and avoid the "rich get richer" scheme noticed in most POS networks.
The protocol is very swift and requires minimal computational power per node for efficient transactions. Each token holder's influence on the choice of a new block depends on its stake in the system. Users are randomly and secretly selected to vote and propose blocks, irrespective of their stake. Algorand's PPoS method ties the security of the whole economy to the honesty of the majority, not just a small part of the economy.
Contrast: Bonded Proof of Stake (BPoS), Delegated Proof of Stake (DPoS), and Pure Proof of Stake
So how does the PPoS differ from other POS models?
It has to do with the standard of decentralization. Let's take two well-liked POS variants:
Delegated Proof of Stake (DPoS), and;
Bonded Proof of Stake (BPoS).
Delegated Proof of Stake (DPoS): The DPoS contains a fixed number of nodes called delegates. These delegates are responsible for producing blocks, which are selected in a round-robin order. They are also voted on by token holders, whose voting power lies in the number of tokens they own.
In this case, we only derive a system that does well in a transaction throughput but forfeits decentralization and hence doesn't meet the Blockchain Trilemma issue. In contrast, the PPoS network does not have a select few, and the system selects validators at random, regardless of stake. But since there is no special group of validators, it is difficult for attackers to compromise the system.
Bonded Proof of Stake (BPoS): No form of delegates is involved in this network. Users must lock up a certain amount of their token in order to stake and influence the blocks that are produced or added to the blockchains.
They lock up their stake for a period of time in order to become validators. Their voting power is proportional to the stake. This adds more advantages to wealthy participants. PPoS is different from Bonded Proof of Stake in that users don't have to lock up their tokens in order to be able to help make blocks.
Quantum-Resistant Blockchains: The Future of Cryptography on the Blockchain
As broad as these use cases for the consensus mechanism may seem, they all have their roots in the underlying cryptographic nature of the blockchain.
However, even if a large number has very large prime factors, it might be simpler and faster to calculate its factors using extremely fast quantum computer algorithms.
This implies that blockchains protected by current cryptography algorithms would be vulnerable. This is because it would only take a few seconds to discover the cryptographic keys.
In response, discussions, and research on blockchains that can mitigate this has started to take shape.
A blockchain with such quantum resistance would make it even more challenging for quantum computers to break the chains.
These blockchains would use algorithms that can produce stronger keys that can withstand the challenge of quantum computers, rather than the current cryptographic algorithms, which cannot withstand quantum computers.
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