Cryptography

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Cryptograhpy contributes the crypto to the term cryptocurrency. Cryptography is the technology of making comprehensible text or other information indecipherable without the use of a key or extreme brute force efforts.

Cryptography in Bitcoin

Cryptogrpahy is at the heart of bitcoin. Regarding making payments over a communications channel - as opposed to in person, Satoshi Nakamoto's white paper, "Bitcoin: A Per-to-Peer Electronic Cash System," states, "What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."[1]

In bitcoin miners group transactions into blocks of data that are broadcast to the bitcoin network. Each new block contains a cryptographic hash of the last previous block. For purposes of data compression as well as privacy and security, transaction information is hashed before it is included in a block. After a transaction has been validated it is hashed before it is included in a block. Each block includes a hash of the last block which leads to the creation of the chain. Because cryptographic hash functions are deterministic and highly collision resistant, including a hash of the last previous block effectively prevents anyone tampering with its contents once the next block has been formed.[2]

As suggested by the Nakamoto white paper, bitcoin uses the very strong SHA256 [hash function] for encryption.[3]

Background

Cryptography has been in use since at least the time of Julius Caesar, who employed what is known as the Caesar cipher in his military communications. The Caesar cipher replaced each letter in plain text with the letter that preceded it by some fixed number of places.[4] For example, in a Caesar cipher -2, the term bitcoin would become "zhramzl."

More recently, in 1991, an encryption program, "Pretty Good Privacy" or "PGP", controversially appeared on the Internet, free to use. A programmer named Phil Zimmermann designed the program to make it easy for the average person to encrypt their emails. The U.S. Government for a while maintained that such programs could not be exported from the U.S. for reasons of national security and was opposed to the availability of PGP on the Internet. In 1996, the Department of Justice announced that they had stopped their investigation.[5]

In 2001, the U.S. Government's own National Institute of Standards and Technology published the Advanced Encryption Standard ("AES") which is widely used today.[6]

References