Blockchain encryption and cryptography - what is it and how does it work?

A blockchain is a record of transactions that is distributed and copied across a network. The technology behind blockchain is essentially a peer-to-peer network, ensuring private and secure transactions that cannot be tampered with or changed. In other words, blockchains ensure that the information they contain is immutable. They are also known as a distributed ledger technology (DLT).

Transactions in a blockchain are recorded and shared across many nodes – or computer systems. Blockchain’s decentralised and secure nature gives it massive potential to feature in – or even fundamentally change – various industries, including computer science, finance and healthcare.

In this blog, we’ll:

  • Explore what encryption blockchain has – and what it means
  • Learn exactly how blockchain cryptography and encryption works
  • Look at the impacts of encryption on the blockchain network.

First of all, what does blockchain encryption mean?

What is blockchain encryption?

One of the keys to data privacy is blockchain encryption. Fundamentally, encryption means hiding the true meaning of messages to protect their contents. Encryption and cryptography in blockchain are a little more complicated than in other areas, like passwords, files and data transfer. But that’s part of what makes it so secure.

As a basic introduction, a blockchain works by following these steps:

  1. Create a new transaction
  2. Share the transaction with all nodes of the blockchain network
  3. Nodes check and confirm the transaction
  4. Confirmed transactions are clustered into a block
  5. Confirmed blocks are added to the chain permanently.

One of the biggest problems that this process solves is enabling completely private, secure and immutable information sharing across a medium that isn’t always secure (the internet). Communication can mean many things, basically covering any situation in which data is shared or transferred.

So why do these messages need encryption? Sometimes data can be intercepted or sent to the wrong place – in this situation, encryption provides a layer of protection against outside interference. Should the data fall into the wrong hands, encryption means they’ll only read it as gibberish without the encryption key or function. Encryption in blockchain is one of the tools that ensures the security of the information it contains.

Is encryption reversible in blockchain?

For every bit of information that is encrypted, there is a possible way to decrypt it. Usually, this is done using a specific secret key or mathematics to reverse the encrypted data to its original format, making sure only the correct users can see the secret information.

Let’s dive a little deeper into how blockchain data encryption and blockchain encryption algorithms work.

How does blockchain encryption work?

The blockchain platform uses a few different cryptographic methods to encrypt its data.

Cryptographic methods in blockchain technology

There are many types of cryptography. Some use secret keys, others use different keys for different jobs, and others use mathematical problems to transform characters. Modern blockchain technology uses a number of algorithms developed by private users, national organisations, and the National Institute of Standards and Technology (NIST).

Sensitive data can be protected by cryptographic algorithms. They typically take each character, substitute or transform it using various methods, and output a new character. Using these cryptographic algorithms, senders turn strings of plaintext into ciphertext.

Plaintext and ciphertext

Plaintext is clear language that humans can read, process and understand. It’s the most comprehensible type of text, often written as common human languages or passwords. By its nature, plaintext is easily understood by everybody – even people we might not want to understand it. That’s why encryption algorithms turn plaintext into ciphertext.

Ciphertext typically looks like gibberish. To a human, it looks like a completely random and meaningless string of characters. However, during the decryption process, ciphertext can be turned back into plaintext – if you have the right information.

What safety guarantees do cryptographic methods give?

Cryptographic methods turning plaintext into ciphertext are robust, to say the least. Depending on the length of the data, it might take a supercomputer up to 10 quintillion years to break an encryption key – far, far longer than the universe has existed!

So, what methods are used to make these incredibly strong blockchain encryptions?

Types of blockchain encryption

The types of encryption used for blockchain cryptographic algorithms are hashing and key pair functions.

Hash Functions

Blockchains use a hashing algorithm, such as SHA-256, to keep data secure. At their most basic, hash functions perform mathematical operations on plaintext to convert it to ciphertext, or hash values. The ciphertext is then unreadable without knowing the hash function.

Cryptographic hash functions are a cornerstone of the blockchain. They convert blocks to a fixed length hash value that can be stored by the following block to form an unbreakable chain. Overall, this provides security and integrity to the entire blockchain.

Symmetric-Key Cryptography

Many other cryptography algorithms work through keys. These keys are used to convert plaintext to ciphertext – and anybody with the key can decrypt the text back into plaintext. Symmetric-key cryptography uses one key both for encrypting and decrypting. It’s a fairly simple method and open to breaches if the key is lost. For this reason, it’s not commonly used in blockchain – but it helps us understand another technology that is.

Asymmetric-Key Cryptography

Asymmetric-key cryptography is a widespread encryption method in blockchain technology. It uses a pair of keys: a private key and a public key. The public key is used to encrypt data – but a different private key is needed to decrypt and read that data. By requiring two keys, asymmetric encryption is a much more robust cryptographic method than symmetric key.

Asymmetric encryption in blockchain uses include digital signatures in cryptocurrencies, with private keys confirming ownership.

Uses of cryptography in blockchain

So, what are some real-world examples of cryptography in blockchain?

  • Cryptocurrency: Digital currency like Bitcoin and Ethereum uses encryption extensively. Bitcoin transactions use key pairs, while the Bitcoin network chain is secured with hashing
  • Smart contracts: Digital assets and proof of work can be guaranteed by the uniqueness of transaction data – this is secured with hashing and encryption in blockchain records
  • Mobile apps: Many mobile app development projects now turn to blockchain technology, ensuring integrity through cryptographic hashes that protect stored data.

Conclusion

Blockchain technology uses various encryption methods to keep data secure, private and immutable. The encryption methods used include hash functions and blockchain asymmetric encryption – each forming part of the security puzzle. With these benefits, the blockchain can be the foundation of many modern systems, emerging technologies and app developments, ensuring critical data security.

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