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Cryptography Meaning

Sep 14, 2023 | Updated Sep 14, 2023
Cryptography is the technique of securing information through using codes so that only the intended party can access it.

What Is Cryptography?

Cryptography is the practice and study of secure communication techniques that protect information from unauthorized access or alteration. It encodes data in a way that can only be deciphered by those with the appropriate key or knowledge

In the past, cryptographers transformed plain text messages (“plaintexts”) into unreadable ones (“ciphertexts”). This process involves creating a cipher, ensuring that only individuals with the matching private key can decrypt and read the message.

Today, cryptography plays a vital role in various digital applications, such as ensuring secure online communication, encrypting data for storage and transmission, authenticating users and devices, safeguarding online transactions, protecting passwords, enabling blockchain technology, securing file sharing, and ensuring privacy in the Internet of Things (IoT).

Cryptography in Blockchain

Blockchain systems integrate cryptography for security. For instance, Bitcoin utilizes it in several critical ways to secure its decentralized digital currency network.

Firstly, it employs cryptographic hash functions to generate unique, fixed-length hashes for transaction blocks, forming an unchangeable chain of blocks that deters tampering with past transactions.

Secondly, public key cryptography is used for user authentication and transaction security, with users possessing both public (for receiving funds) and private (for signing transactions and spending funds) cryptographic keys. The private key’s secrecy ensures control and ownership of associated bitcoins.

Lastly, Bitcoin miners compete to solve intricate cryptographic puzzles via proof-of-work, which not only secures the network but also validates transactions while deterring double-spending and fraud.

Cryptographic Methods in Cryptocurrencies

In cryptocurrencies, two primary cryptographic methods are used

Symmetric Key Cryptography

Here, both the sender and receiver use the same key to encrypt and decrypt messages. This single-key approach is faster and requires fewer computational resources compared to asymmetric cryptography. However, securely sharing the secret key remains a challenge, as intercepting it could lead to data decryption by unauthorized parties.

Asymmetric Key Cryptography

In this method, a blockchain’s algorithm employs a pair of keys (public and private) to hash a message. The public key encrypts, while the private key decrypts. Anything encrypted with the public key can only be decrypted using the matching private key. This eliminates the need for secure key exchange, making it suitable for secure communication across untrusted networks like the internet.

Yield Farming

Yield farming is the practice of lending or locking up assets in a DeFi protocol to earn rewards.

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Paper Trading

Paper trading is the practice of simulating trades in cryptocurrencies or other financial instruments, like stocks, without investing real money. Paper trading helps users practice trading strategies before investing with actual funds.

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Mining is the process of confirming and validating transactions and adding them to a proof-of-work blockchain.

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