Into Cryptocurrency: The Money of the Future (Part I)

Money, like mathematics, is a uniquely human creation. Before the idea of Money was invented, people used to barter goods. In other words, they exchanged (goods or services) for other goods or services without using money. The main problem with this method is that you need to find someone who possesses the goods or service you wish to have and this person needs to be willing to exchange it with what you have.

To overcome this issue, people reached to the very basic idea of money by using mediums that have a value that is accepted by everyone such as metals and seashells. Over the years, money has developed as an idea and has had different forms. And the form that was a result of the Digital Revolution (also known as the Third Industrial Revolution) is Digital currency which in turn led to the invention of Cryptocurrency.

“The vast majority of our financial transactions these days involve no physical exchanges but rather the exchange of data that signifies wealth.” — Barton Poulson.

Cryptocurrency

Cryptocurrency is a decentralized, immutable, and transparent digital currency that leverages blockchain technology and uses cryptography to function.

“ It looks like we are in the early days of a possible new revolution in how money is created, stored, and used.” — Jonathan Reichental, A multiple award-winning technology leader.

To make sense out of the definition above, we need to understand what blockchain and cryptography refer to and mean.

Blockchain Technology

“Blockchains promise to be as fundamental as the internet
in shaping how future business will be conducted.” — MIT Sloan Management Review (Sep, 2018).

Blockchain can be described as a data structure that holds transactional records or as a chain of records stored in the form of blocks.

In the simplest terms, Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.

Blockchain Features

There are several features and characteristics that make blockchain unique and special. The main 4 are:

1. Immutability: Every node on the network has a copy of the digital ledger. To add a transaction every node needs to check its validity. If the majority thinks it’s valid then it gets added. This ensures transparency and makes it corruption-free. Any validated records are irreversible and cannot be changed.
2. Decentralization: The network is decentralized meaning it doesn’t have any governing authority or a single person looking after the framework. Instead, a group of nodes maintains the network making it decentralized.
3. Security: As it eliminates the need for a central authority, no one can change any characteristics of the network for their benefit. Also, since all records are individually encrypted, that ensures another layer of security.
4. Distribution: All network participants have a copy of the ledger and everyone maintains the network. This distributes the computational power across all the computers of the network to ensure a better outcome.

Cryptography

In computer science, cryptography is associated with the process of converting ordinary plain text into unintelligible text and vice-versa. It is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it.

And it aims to achieve four main goals:

• Confidentiality: information can not be understood by anyone other than the ones who are supposed to.
• Integrity: information can not be changed or altered in a way that can not be traced or detected.
• Non-repudiation: Sender cannot deny his/her intentions in the transmission of the information at a later stage
• Authentication: Sender and receiver can confirm each other’s identity and the origin/destination of the information.

Cryptographic Techniques

In cryptography, a key is a piece of information used for scrambling data so that it appears random; often it’s a large number or string of numbers and letters.

Single-Key Cryptography: Both the sender and receiver share a single key. And it is used for both encrypting and decrypting the plaintext.

Public-Key Cryptography: Data gets encrypted and decrypted using two different keys. One available for anyone to use and used to encrypt information — it is called Public-key. Where the other is called the Private-key and used to decrypt the data encrypted by the Public-key.

Hash Functions: No key is used in this algorithm. A fixed-length hash value is computed as per the plain text that makes it impossible for the contents of the plain text to be recovered. Hash functions are also used by many operating systems to encrypt passwords.

Sources:

• Definition of Cryptography — The Economic Times.
• Cryptography — SearchSecurity.
• What is public-key encryption? — Cloudflare.
• What is Blockchain? — Euromoney Learning.
• Replenish your fears against Blockchain. — Hackernoon.