Home Bit Coin Understanding Cryptography And Bitcoin- Important Points To Note

Understanding Cryptography And Bitcoin- Important Points To Note

by Aryan

These days, it’s hard to find someone who hasn’t at least heard of bitcoin. Bitcoin ecosystem is just a form of digital currency that can be used to undertake online monetary transactions anonymously and independently of any central bank or other centralised authority. 

At present, the ‘blockchain’ technology, a distributed ledger, is crucial to the operation of bitcoin. Blockchain relies on cryptography for its elementary underpinnings. Let’s delve in to learn more about several important aspects. Read on to know more in detail to have an overall better understanding!

Cryptography aspects

The mathematical aspect of cryptography deals with a wide range of techniques for keeping digital data secure and private, including encrypting and decrypting data, using hash functions, and generating digital signatures using a variety of algorithms. Bit coin is one of the crypto currencies that make use of Cryptography to construct a novel and decentralised monetary system, making it possible for users to make digital payments directly to one another. This process makes the entire thing quite distinct than the usual financial processes we are aware of. In this age of Bitcoin, it’s crucial that we comprehend the inner workings of the flourishing cryptocurrency industry.

It’s true that cryptography isn’t exactly cutting-edge, yet many modern technologies rely on it in one way or other. The secure transmission of data over the internet, as well as the use of digital identities, banking, and social media- all relies on the cryptographic mechanisms developed over the years.

Bitcoin and the process of encryption

Let understand the technical aspects with respect to the functioning. Simply said, encryption is a method through which information can be changed into an unbreakable code. With this method, the information is transformed into a form that can be comprehended by the selected participants in the procedure but by no others. It’s the path taken by plaintext on its way to becoming cypher text. Well, most modern electronic gadgets and related services employ some form of encryption to safeguard user information.

A decentralised database means that encryption isn’t strictly necessary on the network supporting it. The block chain technology is set up in such a way that the data passing through the bit coin nodes is not encrypted, allowing for communication between users who are not in any way connected. 

However, additional privacy and/or security may be desirable in some BitCoin services. The majority of Bitcoin wallets, for instance, would encrypt the private keys. An appropriate illustration of this is the Advanced Encryption Standard; the NSA employs this particular encryption technique to protect very important data. Therefore, in order to decode such a protected wallet, you must have access to the password that serves as the sole key to unlocking it.

Implications of Hash Functions

It is an intriguing mathematical function which takes the data as input and returns a result with numerous unique properties. A hash or digest is a long string of integers and letters written in hexadecimal.

The Bitcoin network employs the secure hashing method SHA-256. Proof-of-work refers to a mechanism, and hashing is used to ensure that it is implemented correctly. Hashing is an inherently uncertain and random operation. With such a high hash rate, a miner can employ their computing power to generate a network block. This contributes to the immutability of bitcoin and is therefore necessary for its use.

Role of Digital Signature In Bitcoins- What To Know

In terms of authority, a digital signature is no less than a physical signature. However, this is a highly secure item. It is not copyable or pasteable in any form. This aids in validating data approval in terms of the precise identity of the appropriate signer. A digital signature has three vital components: the data being signed, the signer’s public key, and, of course, the signature! 


In brief, using encryption, bit coin can function as a peer-to-peer system without the involvement of any third party or authority and at the same time the safety aspects remain intact for all the users. In this regard, you may opt for BitIQ to explore the opportunities and information.

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