Cryptography: Fuel for Blockchain Development

Abstract

We have witnessed the birth of revolutionary technologies capable of disrupting a wide range of business models throughout history. Blockchain Innovation is one such technology with its roots deeply invested in cryptography.

Cryptography is a prevalent technology in cyber-security and has thoroughly permeated economics - a concept known as Cryptoeconomics.

This article provides the reader with an explanation of basic concepts underlying Cryptography and Blockchain. It further provides information on the cryptographic hashing functions responsible for Blockchain’s impressive security mechanism.

Outline

The article is sectioned as follows:

• Cryptography

• Cryptocurrency

• Cryptoeconomics

• The blockchain technology

• Blockchain security mechanism

• A Closer Look at Hashing Algorithms

• Cybersecurity on Blockchain

• Conclusion

Cryptography

It is no ordinary coincidence that cryptography and cryptocurrency have the same prefix, “crypto,” meaning “secret.” 

Cryptography is the act of keeping digital assets secure through encryption. Encryption is the process of encoding digital files or assets so that only authorized parties can access them. A digital asset may be a message, an audio or video file, electronic cash (as in the case of cryptocurrency), or a document. 

When encrypted digital assets get into the wrong hands, they will remain inaccessible so long as they cannot decrypt them. Decryption is the process of reversing encrypted digital assets. Fundamentally, cryptography is a safe way to send and receive digital assets. 

For example, Japan made use of the 8 “i-ro-ha” Alphabet, 1-7 “Checkerboard” Cipher for cryptography from the 1500s to the Meiji era (October 23, 1868, to July 30, 1912). Therefore, foreigners who lacked an understanding of the checkerboard system - also called Polybius Square - would not decrypt encrypted messages with it.

In the context of this article, the messages are called public keys, and the methods of decryption are called private keys.

Cryptocurrency

Cryptocurrencies are digital assets developed to enable the exchange of electronic cash (and other assets like NFTs) through strong cryptographic keys to ensure the security of funds, transactions, and the creation of new funds.

As with other assets that require encryption, the cryptocurrency’s private key mechanism must be impossible to understand and, therefore, impossible to break to avoid the jeopardy of electronic cash.

A popular example of cryptocurrency is Bitcoin. Bitcoin was invented in 2008 by Satoshi Nakamoto (A pseudo name of a person or persons behind the development of the Bitcoin) with the publication of a white paper called “Bitcoin: A Peer-to-Peer Electronic  Cash System”. However, the actual complete open source software was released a year later, in 2009.

Encryption techniques are used to regulate the generation of cryptocurrency units and to verify the transfer of funds.

Bitcoin is electronic cash transacted via the Internet in a decentralized system using a globalized ledger called the Blockchain. It is a new form of money that combines BitTorrent peer-to-peer file sharing with public-key cryptography.

Cryptoeconomics

Cryptoeconomics combines cryptography and economics in providing an avenue for cryptocurrency transactions, security, and scalability. It uses the concept of decentralization in carrying out these processes; multiple computers, instead of just one, are involved.

Implementing cryptographic techniques on digitalized financial assets is another way to explain Cryptoeconomics. It makes indirect use of cryptographic keys and cryptographic hashing functions for security and stability.

The Blockchain Technology

Blockchain technology is what fuels Bitcoin and other cryptocurrency platforms like Ethereum.

A blockchain is a globally decentralized and distributed ledger. It is a chain of blocks, as the name implies. As a data structure, each block contains records and transactions that are made accessible but intractable to all computers in the network or “chain.”

The blocks are added to the Blockchain in a linear, chronological order. The system of computers connected to a cryptocurrency network using a client that performs the task of validating and relaying transactions is called a peer or node. Each full node in the Blockchain has a copy of the Blockchain, which is downloaded automatically when a miner joins the network.

The Blockchain has complete information about addresses and balances from the genesis block (the very first transactions ever executed) to the most recently completed block. In addition, the Blockchain as a public ledger means that it is easy to query any block explorer for transactions associated with a particular Bitcoin address. For example, computers in the network can access their first transaction via their wallet address.

Blockchain’s Security Mechanism

Every digital asset on the Blockchain is given unique identification via cryptographic hashing value calculated with the “SHA256” algorithm. “SHA” is the acronym for “Secure Hash Algorithm,” and 256 represents the total number of bits consumed in the memory. 

Blockchain Security is built on Cryptographic Hash Functions, which are a special class of functions with special properties.

Every digital asset has a hash value. The value can be derived from the asset but not the other way around. A hashing algorithm generates the hash value and remains the same as long as the asset content is immutable. The hash value is easily and swiftly generated and calculated. A change in the asset contents triggers an instantaneous change in hash value - a concept called the Avalanche Effect. A collision has occurred if a generated hash value is exactly the same as an existing value. Data security and integrity make it compulsory that such collisions are prevented. This makes the hashing algorithm Collision Resistant. 

For example, assuming a digital asset named file.txt is to be hashed and sent through the Blockchain, the application of the hashing algorithm would convert the file to a 64-bit hexadecimal hash value through a hash function.

A Closer Look At Hashing Algorithms

Hashing involves collecting string input of variable length and giving out an output of fixed length. Hashing algorithms are used for holding the structure of the database ledger data (or Blockchain) via the SHA256 hash generator.

The hashing algorithms are used to generate math puzzles that a computer tries to solve for a prize. Once the puzzle is solved, the computer is selected to help handle the transactions.

Hashing algorithms are also used to generate account addresses.

Merkle trees use the hashing keys of extensive data in small pieces. This is useful for lightweight wallets that are needed on constrained hardware devices such as mobile devices.

Cybersecurity on the Blockchain

The Confidentiality, Integrity, and Availability Triad are popular concepts in Cybersecurity. Confidentiality means keeping digital information or data hidden from unauthorized people. Integrity means protecting information or data from unauthorized tampering. Finally, availability refers to on-time and reliable access to data.

Incorporating the CIA security triad model to Blockchain involves:

• Keeping transaction history/details hidden from third-party accessibility. 

• Masking transactions of businesses that adopt cryptocurrencies as payment systems for security purposes.

• Protecting digital assets like data from corruption caused by configuration errors, software bugs, or espionage attempts.

• Making available the records of all transactions, and these transactions could be the entries of business activities, asset entries, supply chain management records, and many more.

Conclusion

This article introduces the concept of cryptography, and later on, the basics of cryptocurrencies and blockchain technology are explained.

A brief look at the security mechanism behind blockchain technology was provided in the section for hashing algorithms. Finally, the reader was introduced to significant aspects where Cybersecurity practices can be implemented on the Blockchain to make it more secure.