Blockchain is a breakthrough in database mechanics, used for cryptocurrency transactions. As a brand new technology, blockchain resolves the issues with security and cyberattacks by ensuring operation verification and traceability through cryptography elements. Henceforth, hashing, keys, digital signatures, and Smart Contracts represent a unique digital layer of security that detects, prevents, and protects the user’s cryptocurrency wallet from technical corruption and cyber threats.
- Hashing ensures stable operation between the blocks in the blockchain.
- The private key serves as a digital signature, while the public key ensures the reception of cryptocurrency transactions.
- Proof-of-Work focuses on competitive mining while in Proof-of-Stake, an individual with a minimal cryptocurrency stake can participate in block creation.
Fundamentals of Cryptography in Blockchain
The concept of cryptography derives from Greek kryptós (hidden) and graphein (to write), aims to protect the cyber wallet users from unauthorized access and double spending. To guarantee data safety and confidentiality, blockchain cryptography operates the following elements: hashes, digital signatures, and keys.
Hash. Hashing operates on unlimited input data by guaranteeing flexibility when transforming them into output data. Hash secures the procedural output from unwanted tampering, like in the case of password verification.
In blockchain, hashing plays a one-way function as it assists the properly crafted algorithm in preventing the reversal of the hashing process and the exposure of the original input. Finally, hashing is beneficial for the encryption of two-way functions: encryption and decryption within the keys or key pairs.
Digital Signature is a cryptographic proof system that assists in eliminating hacking attempts by setting the sender’s and source’s credibility. In other words, a digital signature maintains trust in the blockchain. An example is cryptocurrency transactions, where the public and private keys validate the sender/receiver identities.
Key. There are two types of keys in blockchain: the public and private ones, which are paired. The public key enables receiving cryptocurrency transactions. While any sender can make transactions to the public key, the receiver must use the private key to unlock them. Private key signifies a single-user ownership of the received cryptocurrency.
SHA-256 (Secure Hash Algorithm 256-bit) intertwines the concepts above and secures data in the following way. SHA-256 transforms any input size into the 256 fixed-size output. As a cryptographic hash function, SHA-256 secures documents and messages.
The program serves as a digital fingerprint by generating the hash value of the signed document, representing the digital signature. The user can apply their private key to encrypt the hash value, which represents the digital signature. Then, the recipient can compute the document’s hash value by decrypting the signature using the public key.
Learn more about Agilie's approach to blockchain development opportunities.
Hash Functions and Blockchain Integrity
Blockchain Integrity
The hash functions assist in maintaining the blockchain integrity by intensifying the interdependency between each block. The first thing to remember is that one should not alter the input data as it will change the overall hash value. Each block has its hash and the one of the previous blocks, promoting blocks’ interdependence. The Blockchain Transmission Protocol (BTP) secures the interconnectedness between the blockchains.
Changes in hash values will cause block disorganization because hash functions maintain integrity only by adding a new block to the previous block. Alterations in a block’s input will alter the hash value, disabling their further connection.
Tampering Detection
Hash functions are tamper-proof in the blockchain context. The hash generates a unique fingerprint for each block separately. Additionally, each block owns the hash of the previous block.
A tamper-proof seal of the block’s security is based on comparing the blockchain hashes. From this point, tampering detection and prevention occur by checking and comparing the unique hash functions of each block and hashes of the previous blocks.
Immutability
Hashing contributes to the blockchain integrity and security by disabling the modifications in block’s information. Any alterations will lead to the changes in the blocks by corrupting their linkage as any change has to integrate with alterations in the subsequent block. The immutability in blocks’ information prevents tampering.
Public Key Cryptography for Transactions
Public key cryptography in blockchain for securing transactions
Public key cryptography secures transactions by solving issues like key derivation (when one can get the user from the encrypted data) and key distribution. Public key and private key are the constituents of the public key cryptography.
The sender’s private key serves as a digital signature and encrypts information, while the receiver utilizes a public key to decrypt it. This approach to using a digital signature in the public key cryptography ensures non-repudiation.
The user’s cryptocurrency wallet requires an alphanumeric code or the private key to authorize the transaction and prove one’s ownership of the cryptocurrency asset. The public key secures the transaction by proving its authenticity. Another important function of public key cryptography is its alignment with the digital signature.
A sender signs the message with their private key, formulating the digital signature. Then, the receiver can verify that the message is sent by the sender, not another user, which guarantees the transaction’s authenticity and non-repudiation.
A public key verifies the user’s identity based on their private key. It secures the transaction by enabling the nodes to verify its authenticity. More and more users tend to prefer the node’s public address over the public key’s length.
Encryption and Privacy Enhancements
Consistent hashing leads to the development of consensus algorithms. In blockchain, the presented concept matters as its rulebooks will determine the work of blockchain and networks. Consensus algorithms determine the ways of checking transactions and how they will be implemented in the blockchain.
Consensus algorithms apply to the Peer-to-Peer technology network. The advantages represent the participants’ (nodes) unification in the process of block development. Although this algorithm type means to keep decentralization in block development, its core limitation is the possible transition to a centralized power over the blockchain. This can happen if a group of nodes concentrates on computational power and hardware in the long run.
Encryption transforms plaintext into ciphertext through algorithms. If the user aims to retrieve the information, they have to apply the decryption key to turn the ciphertext back into plaintext. The decryption key is a password or a string of numbers.
Learn more about the latest crypto fundraising trends.
The zero-knowledge proof (ZKPs) technique enhances the privacy of the blockchain network’s application by using the minimum data required to prove its validity. The prover aims to prove that the particular statement is true, while the verifier has to verify its correctness.
ZKPs is an appropriate cryptographic technique for validating transactions without exposing its sensitive information. For instance, to validate the transaction, Jessica (verifier) has to get the password. Dylan (prover) has this password, but does not want to disclose it to Jessica.
To maintain privacy, the prover can send the verifier the hash with the password’s first symbol, like ρ. If the first symbol in Jessica’s hash is ρ, then the transaction is correct, and the verification is successful.
Smart Contracts can be helpful in maintaining blockchain security. This technology avoids centralization enabling the anonymous parties to conduct trusting transactions. Smart Contracts are held in blockchain but will function only if the involved parties adhere to the predetermined conditions.
When applying the zero-knowledge proof technique the EIP-1271 standard enables signing and verifying the Smart Contract signature. For instance, the verifier needs access to the specific website with their digital wallet. The prover sends them their public address, like 0x000. The digital signature will contain both a message and a signature, activating the Smart Contract, respectively.
Role of Cryptography in Consensus Algorithms
Proof-of-Work (PoW)
The consensus algorithms contribute to the block's integrity and smooth function of the decentralized blockchain linkage. The Proof-of-Work (PoW) deals with the nodes that are up to creating a new block. Each node has to solve the puzzle. The node that completes the puzzle will be able to create a new block. PoW operates with the node's computational power.
PoW deals with Bitcoin as a final reward and transactional fees among the involved parties. The private key relates to the account’s owner. The participants of the SHA256 have to validate the nonce’s correctness by reaching the consensus in the blockchain networks. The encryption method and distributed consensus prevents all the members from double-spending.
The involved miners utilize the public key to verify they take part in the transactions. If the node’s result is valid, the involved parties compress the data into the block and intertwine its unique hash with the previous block’s hash.
Proof-of-Stake (PoS)
The Proof-of-Stake (PoS) focuses on the held stakes rather than the computational power, but the node has to solve the puzzle. PoS refrains from the PoW competitive nature by offering ether as the collateral. Its algorithms secure cryptocurrency by requiring the user to show cryptocurrency ownership.
Digital signatures matter to prove a specific validator to a specific message or block. The private key will relate to the cryptocurrency owner. PoS applies the public-private key cryptography. The target audience can view Ethereum’s address, which serves as a unique identifier and a public key.
An instance of the PoS operation is the randomized block selection. BlackCoin applies randomization with a formula that searches for the lowest hash value in the combination. Its principal criterion is the stake’s size. The stakes are public, so the nodes can predict which account is going to win to forge the block.
Security Maintenance
The security implications of cryptography in both algorithms focus on the validity and the aligned order of transactions ensured by reliable hashing. In PoW, the number of miners secures the distributed ledger by validating the node’s correctness, so they share a public key with a minimum group of people. Each block requires solving a puzzle and its further verification, which undermines the hacker’s ability to manipulate the order of transactions.
PoS utilizes a randomly selected validator to create a block. From a security standpoint, the hash power fraction contributes to the selection between the validators where the miner responsible for creating a new block will be randomly selected.
In addition, PoS utilizes protocols to determine the next miner that enhances the blockchain security. The Ouroboros Praos protocol implies that the miner has to check their date and time, apply their private key, and analyze whether their hash is less than the difficulty target.
Challenges and Limitations of Cryptography in Blockchain
-
Centralization occurs when the nodes can conduct dominant mining operations and centralize the node hosting services.
-
“Hot wallet” insecurity emerges as the blockchain blocks are more technically secure than the user’s virtual saving account.
-
Private key errors represent issues in coding the user’s key, which can promote crypto theft.
-
Reentrancy in Ethereum is when the call to action between the Smart Contracts is not synchronized.
-
Fake Smart Contracts vulnerability occurs when its protective mechanism cannot detect whether the method caller is another contract, so choosing Agilie as a blockchain development company will eliminate this issue.
Learning Moment: Blockchain myths debunked.
Conclusion
While cryptography validates the cryptocurrency transaction and ensures its smooth confirmation, you need to keep in mind boosting your security. Agilie can help you develop the crypto wallet and Smart Contract from scratch appropriate for private use and EFT funds, resolving the issues with centralization, weak private key, and false Smart Contract. Interested? Feel free to sign up the form right below the article.
Contact us to find optimal blockchain-relevant solutions for the goals of your project.
