What is Cryptography? How It Keeps Your Crypto-Activity Private

Privacy and safety ; two things at the very top of every crypto enthusiast’s mind, both of which are provided through what is known as cryptography. 

Usually, we would rely on a bank or other third party to provide us with the two, but cryptography allows those involved in cryptocurrency to make transactions safely and securely without facing the downside of relying on a major financial institution. 

Despite being so important, cryptography is difficult to see or feel in action, so let’s take a peek behind the curtain to understand how it benefits crypto investors and influences their trading. 

What Is Cryptography?

Cryptography is a technical method of using mathematical concepts and algorithms to ‘encrypt’ a piece of data. 

By encryption, I mean making the data in question obscured and appear like ciphertext, which essentially looks like gibberish until the recipient receives it and becomes plain text again.

As a result, the only people cryptography will allow to see the contents of said data will often be the sender and intended recipient. Hence, the name ‘crypto’, which in Latin means secret, combined with digital ‘currency’. 

For a private messenger service like Signal or Wire, cryptography will be used to create an encrypted message for secure communication, keeping it hidden from onlookers. In crypto, this is used to protect information regarding transactions and the parties involved. 

This is the core purpose of cryptography, but it has come a long way since its origins to become an integral building block of modern cryptocurrency eventually.

History of Cryptography

Unlike many cryptocurrency components, cryptography didn’t emerge alongside the birth of the internet or the blockchain. 

In stark contrast, it actually has its roots in Ancient Egypt, where Roman emperor Julius Caesar used’ Cipher writing’ in his letters that only a select few recipients could understand. However, it wouldn’t be known as a form of technical cryptology until many years later.

The next major use of cryptography was Alan Turing’s Turing machine, which decrypted secret German messages during World War 2. 

Cryptography would then become a mainstream idea in the public consciousness with the introduction of the Data Encryption Standard (DES) in the early 1970s.

With the cypherpunk movement of the 1990s, influential developers like David Chaum began pondering ways cryptography could be used to provide financial privacy for online users when exchanging digital assets. 

In 2008, cryptography would become one with cryptocurrency upon the introduction of Bitcoin (BTC) , and quickly became the data encryption standard for all blockchains going forward. 

Why Cryptography Is So Important to Crypto

Decentralization , that is, being able to transact digital assets without any reliance on banks and third parties, is the underlying raft that keeps the cryptocurrency ecosystem afloat. Still, it’s only made possible by cryptography.

Cryptography achieves this in two central ways. First, it physically protects against intermediaries such as banks spying on sensitive information and getting involved themselves. 

However, cryptography also contains safety measures within its code that ensure every transaction made in a blockchain is verified and legitimate, ensuring that crypto isn’t just a wild wasteland full of bad actors. 

To bring this together, blockchains will use cryptography to allow users to exchange crypto safely, securely, and privately without any need for an intermediary. Not only does this provide decentralization, but it also makes people less hesitant to interact with crypto, given how reliable cryptography has proven to be. This will bolster investor confidence and bring more recognition to the industry as a whole. 

How Cryptography Works in Crypto 

So, now that we know the basics of cryptography let’s explore how it specifically facilitates privacy and security for the everyday investor. 

Privacy 

To understand how cryptography offers privacy, one must first examine it through the lens of the key pairing system.

Key Pairs for Secure Transactions

Every crypto user has a public and private key attached to them as part of the encryption algorithm. This is widely known as asymmetric key cryptography, or elliptic curve cryptography (ECC), on a more technical level, and it applies to the majority of blockchains . 

The public key acts as an address that people can use to send you crypto, while the private key is a personal tool needed to create a digital signature for a transaction and access your own funds.

Think of it this way: If Dan wants to send some crypto to Mary, he will first need Mary’s public key, which will encrypt the message, and then he can send it off using his private key. On the receiving end, Mary then uses her private key to decrypt the information, ensuring that it remains encrypted while in transit and creating a fully private and enclosed transaction system. 

Personal Privacy 

Alongside financial privacy, cryptography also prevents crypto investors from exposing their personal information and details. 

This is thanks to the aforementioned key pairs, which are part of asymmetric cryptography. Remember that in order for a person to send tokens your way, you will only be giving out your public key, which looks like a business address made up of several random characters.

Thanks to the cryptographic key system, you won’t be forced to reveal your name, residence, occupation, or any other private details. 

Security 

Alongside offering privacy, cryptography also feeds into some of the blockchain’s most integral security measures too. 

Uphold Block Safety

The term ‘blockchain’ isn’t just a fancy name conjured up out of the blue, it is a specific reference to how transactions are handled on a network, and in turn, how cryptography affects them. 

Transactions that take place on a network are placed into individual ‘blocks’, which are connected to one another as part of a long-running ‘chain’. 

Each of these blocks contains a cryptographic hash function, which, in simple terms, are fixed strings of code that ensure that the data in a block is authentic. More importantly, though, because hash functions connect from the last block to the next, altering one would result in altering the entire chain. 

This is an example of how cryptography ensures a trustless environment by preventing bad actors and hackers from changing the details of a transaction after it’s been finalized. In this way, cryptography bolsters cybersecurity and fends off brute-force attacks on the network, providing non-repudiation to ensure nobody can get away with it. 

Consensus Algorithms 

Cryptography ensures that blocks of data can’t be tampered with, but it also validates the blocks so that fraudulent schemes aren’t in play. 

Every block must go through a verification process, one of which being Proof of Work (PoW) , the consensus algorithm still used by Bitcoin.

As part of Proof of Work, validators, also known as miners, must compete with one another to solve a cryptographic puzzle. The purpose of this is to prove their capabilities and expertise, putting in the ‘work’ and computing power to then have a chance of verifying a block in exchange for rewards. 

Therefore, the mechanism directly relies on cryptography uniquely to determine how reliable and efficient someone can be when taking up the mantle of the validator. Additionally, since algorithms like Proof of Work essentially replace the need for banks to authenticate transactions, it’s another area where cryptography bolsters blockchain decentralization. 

Additionally, it provides security for all blockchain users by creating a method for verifying each transaction that enters, ensuring people aren’t duplicating payments or spending less than they agreed on. 

What Is Symmetric Key Cryptography?

We’ve already covered asymmetrical cryptography, in which every user holds their own pair of keys, but there is another, lesser-known form of cryptography that has been tested by a select few blockchains.

This is known as symmetrical cryptography, or symmetric encryption, and while it serves the same purpose of keeping transactions secure, it does so in a slightly different way. 

In symmetrical cryptography, the sender and recipient share a single key (secret key) for encryption and decryption. This can have some benefits, primarily in terms of speed and general ease of use, but figuring out how a key exchange would work in practice has been a fork in the road for many who have yet to fully embrace it. 

However, there are indications that symmetric cryptography could be the way forward for several blockchains, especially since it’s said to be more resistant to the oncoming dark cloud known as quantum computing. 

The Future of Cryptography in Crypto

There have long been lingering anxieties within the crypto community concerning the reliability of modern cryptography. 

It may have held up pretty well thus far, but governments have been discussing ways to ‘backdoor’ encrypted sensitive data within crypto as far back as the Obama administration . 

More recently, though, the arrival of quantum computers has sparked a mild panic, especially with their development being bolstered by the rapid rise of AI. Quantum computers may be able to decrypt the majority of modern-day cryptographic algorithms in the coming years, which could open up several vulnerabilities for crypto holders. 

Thankfully, solutions are being developed in preparation for this. Some existing blockchains, such as Ethereum (ETH) , are looking to deploy post-quantum cryptography techniques to create a barrier of protection. This will enhance encryption specifically against quantum computing, but there have also been suggestions of a major hard fork occurring if quantum threats are detected. 

Embedded new blockchains have even been created in preparation for quantum computing. One of the most popular is Mochimo, which proudly proclaims itself a frontrunner in the “Post-Quantum era.” It plans to use an advanced encryption standard (AES) to protect against quantum attacks. 

Major organizations like the National Institute of Standards and Technology (NIST) have also been trying to develop cryptographic techniques that can withstand an upcoming post-quantum apocalypse.

Whether post-quantum computing will have such a sizable impact is yet to be seen, but what is clear is that cryptography is always under threat, either from bad actors or governmental authorities. 

On the Flipside 

• In reference to the rise of post-quantum computing, it’s unclear whether there will be any end to cryptography-cracking technology.
• Cryptocurrency developers may need to keep upgrading their tech or continue moving to other encryption standards in order to fend off these external threats.

Why This Matters

By creating a system of fairness, and ensuring that each investor is acting responsibly, cryptography has allowed crypto to flourish and be acknowledged as more than a one-time fad, and more of a genuine leap in technological development and financial privacy. 

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