Published on October 5th, 2020 | by Bibhuranjan0
Use of cryptography in Cryptocurrencies
The cryptocurrency name itself is made by combining cryptography with the currency. Before knowing how this technology is used in operating & trading cryptocurrencies, we have to, first of all, understand what cryptography is?
What is cryptography?
Cryptography is a technology of encrypting information so that only the receiver can read this. Cryptography is a very old technology. Kings were used to sending secret messages using Cryptography. The words were arranged in an order so the messages can be easily decoded by the recipient. In world war 2, allied forces have started having gain over axis forces when their codes have been decrypted by the British. In cryptocurrency, this old method of cryptography is used in a new way. Cryptocurrency is an online currency mainly, now some countries have accepted it as legal currency, and you can exchange your cryptocurrency in real currency there. Many of the popular online businesses accept Bitcoin cryptocurrency for making online purchases. Then a question comes how encryption and description of codes can serve as currency, so before understanding that, we will have a brief look at how currency works.
How cryptography used in issuing currency?
So currency is nothing but a legal tender released by any financial authority backing its value. Mainly national banks issue these legal tenders, as per their value of liquidity. These legal tenders serve as means of exchange of goods under certain territory owned by that government. Similarly, the value of cryptocurrency is secretly backed by the capitalist of the world. And cryptocurrency authorities work like banks; one has to pay to buy a certain cryptocurrency initially. The value of that cryptocurrency keeps fluctuating. It can go up and down depending upon various factors that include the law of demand and supply as well. A cryptocurrency holder can sell their cryptocurrency at its instant rate. He can suffer either loss or profit depending upon the difference of cost price and selling price.
Now let’s move on to understand how cryptography plays a role in making cryptocurrency transactions by securing its value and assuring made transactions.
So just like after opening a bank account, you get a bank account number and an ATM pin. The bank account number is shared with others for depositing money, and the ATM pin is used to withdraw money. Similarly, in cryptocurrency, a user gets a public key that they can share with others and also gets a private one for themselves. He can share his public key to anyone to receive cryptocurrency, but his public key is his account’s password. These codes are issued using the technology of cryptography. For signing into their accounts, users don’t have to type their name or address anything; only that private key is their identity. If that key is lost, he will lose all his money and account. Cryptocurrency authorities don’t know you by your name or nationality; your relationship with your cryptocurrency provider is via that code. To buy anything using cryptocurrency, you have to open your account using the private key, and then you can transfer the value to another user’s private key. In this way, cryptography secures the transaction and safeguards value doubling as one code is issued only for one user; the value of all assets is associated with that one code. Therefore, it is very important to protect that code. You cannot distribute that private key code; otherwise, there is a risk that your money will be withdrawn or transferred to another public key.
Safety of private crypto key
Every cryptocurrency owner should ensure the safety of their crypto code. In the future, cryptocurrency growth is foreseen, and more people will buy cryptocurrencies. In that scenario, hackers will try to steal the private key of users. To safeguard your crypto key, the first steps need to be taken by the owner itself, by minimizing any leaking of their code. They may use a cryptography method to remember their code and share that private key to a trusted one in another layer of encrypted security.
In history, many incidents happened where users had to lose all their money because of forgetting their private key. For safeguarding against these thefts and losses, different companies are providing different methods of security. Like one company has started providing hardware keys, you will get a device that is your actual code and that the password will also safeguard the device. For making any transaction, you can use that device directly. In this way, chances of leaking private keys get omitted.
Other companies, as a final layer of security against loss of your key, offer insurance. You can secure your asset by using insurance, in case of any theft or loss incidence, you will recover your investment and not the profit. It is considered the final security layer, but you have to secure your own private key to becoming a smart investor anyhow.
Photo by Micheile Henderson on Unsplash