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Cryptography in Blockchain: Types & Applications [2022]

Introduction to Blockchain

Blockchain is a peer-to-peer network; the word ‘blockchain’ is made up of two separate terms, ‘block’ and ‘chain’. A block being referred to a collection of data, alias data records, and chain being referred to a public database of these blocks, stored as a list.

These lists are linked using cryptography, making it the most essential and fundamental requirement for creating a blockchain. Blockchain is a growing list of records, and the blocks get appended to the list with time. Cryptography in blockchain can be a tricky concept, but we have tried to simplify it for your better understanding.  

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Cryptography

Cryptography is a method of developing techniques and protocols to prevent a third party from accessing and gaining knowledge of the data from the private messages during a communication process. Cryptography is also made up of two ancient greek terms, Kryptos and Graphein, the former term meaning “hidden” and latter being “to write”. There are several terms related to cryptography, which are stated as follows: 

Encryption: It is a process of plaintext (normal text) to a ciphertext (random sequence of bits). 

Decryption: The inverse process of encryption, conversion of ciphertext to plaintext.

Cipher: The mathematical function, i.e. a cryptographic algorithm which is used to convert plaintext to ciphertext. 

Key: A small amount of information that is required to induce the output of the cryptographic algorithm.

Read: Blockchain Project Ideas

Types of Cryptography

To understand cryptography in blockchain, one has to understand the types of cryptography. There are mainly three different ways in which we can perform cryptographic algorithms, namely, symmetric-key cryptography, asymmetric key cryptography, and hash functions.

1. Symmetric-Key Cryptography– In this encryption method, we take a single key into application. This common key is used for both the encryption as well as the decryption process. Using a common single key creates a problem of securely transferring the key between the sender and the receiver. It is also called Secret-Key Cryptography.

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2. Asymmetric-Key Cryptography- This encryption method uses a pair of keys, an encryption key, and a decryption key, named public key and private key respectively. The key pair generated by this algorithm consists of a private key and a unique public key that is generated using the same algorithm. It is also called Public-Key Cryptography.

3. Hash Functions- This type of encryption doesn’t make use of keys. It uses a cipher to generate a hash value of a fixed length from the plaintext. It is nearly impossible for the contents of plain text to be recovered from the ciphertext. 

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Use of Cryptography in Blockchain

Blockchains make use of two types of cryptographic algorithms, asymmetric-key algorithms, and hash functions. Hash functions are used to provide the functionality of a single view of blockchain to every participant. Blockchains generally use the SHA-256 hashing algorithm as their hash function. 

Cryptographic hash functions provide the following benefits to the blockchain:

  • Avalanche effect – A slight change in the data can result in a significantly different output.
  • Uniqueness – Every input has a unique output.
  • Deterministic – Any input will always have the same output if passed through the hash function.
  • Quickness – The output can be generated in a very small amount of time.
  • Reverse engineering is not possible, i.e. we cannot generate the input by having the output and the hash function.

Hash functions have a major role in linking the blocks to one another and also to maintain the integrity of the data stored inside each block. Any alteration in the block data can lead to inconsistency and break the blockchain, making it invalid. This requirement is achieved by the property of the hash functions, called the ‘avalanche effect’.

According to this, if we make even a slight change in the input to the hash function, we will end up getting a totally unrelated output as compared to the original output. Let us take an example of an SHA-256 hash function, and compare their outputs, 

Input: Blockchain at upGrad

Output: 04f0ecc95159533982d7571eada5f8d76592b6e97ead964467c603d31b9e7a9c

Input with a slight difference: Blockchain at upGrad

Output: 80b069904b6a8db46ed94e7091ff4e5fc72fae5422d46cc57d8f66db7abf4781 

You can notice the huge difference in output after changing a single character at the input from lowercase to uppercase. This makes the data reliable and secure on the blockchain; any changes in the block data will lead to this difference in hash value and make the blockchain invalid, making it immutable.

Asymmetric-key cryptography is where the private key generally needs to be produced by a random number algorithm, and the public key is calculated by executing an irreversible algorithm. The asymmetric encryption algorithm has the advantage of having separate public and private keys, which can be transferred over unsecured channels.

Likely, it also has several disadvantages, some of them being low processing speed and unsatisfactory encryption strength. It is very much necessary to ensure the security of the asymmetric encryption algorithm during the transmission of data on the blockchain.

One of the major parts of asymmetric-key cryptography is digital signatures. Digital signatures provide integrity to the process; they are easily verifiable and cannot be corrupted. They also hold the quality of non-repudiation, making them similar to the signatures in the real-world. The digital signatures ensure that the blockchain is valid and the data is verified and correct. 

Hashing, public-private key pairs, and the digital signatures together constitute the foundation for the blockchain. These cryptographic features make it possible for blocks to get securely linked by other blocks, and also ensure the reliability and immutability of the data stored on the blockchain.

There are a huge number of applications of blockchain technology, and cryptography makes it possible. One of the major real-world applications of cryptography in the blockchain is cryptocurrencies. Let us look at its application in cryptocurrencies.

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Cryptocurrencies are one of the major applications of blockchains, and they use public-private key pairs to maintain the addresses of the users on the blockchain. For cryptography in blockchain, the public key is used as the address of the person. The public key is visible globally, i.e. it is visible to any participant of the participant. The private key is a secret value and is used to access that address data and authorize any of the actions for the ‘address’, which are generally transactions. 

Digital signatures are widely used for cryptocurrencies. They are used to approve transactions by signing them securely (offline) and are also used for multi-signature contracts and digital wallets on the blockchain. To perform any action from these multi-signature contracts and digital wallets, the digital signatures from multiple (different) private keys are required before any action to be executed.

Also Read: Blockchain Developer Salary in India

Conclusion

Blockchain technology has been in the key focus areas of development for all the multinational companies and also a huge number of startups are emerging in this technology from the past few years. Blockchain is yet to witness its mainstream usage in society, yet there are numerous opportunities for professionals to explore and develop their careers in this field; one of which is cryptography in blockchain for sure. With time this field will be providing endless opportunities, and for this, you can start learning the blockchain technology and have the first-mover advantage with upGrad

Also read, blockchain career and its future scope

Cryptography in the blockchain is the core of this technology, making it immutable and reliable. If you’re interested in this field and want to explore this technology, you can have a look at the various courses provided by upGrad.

Individuals who plan to grow their career in blockchain can take up any of these courses and much more offered by upGrad to dive into blockchain technology to achieve the amazing blockchain career opportunities that are waiting for them in the future.

How does cryptography work?

Cryptography is mainly used to provide security by changing data, particularly texts, into some secret language which the user can later change back into the original form. Here, the data or text to be changed is called Plain text, and the secret or revised text is called the ciphertext. The process of changing the plain text into ciphertext is called encryption. The encryption process helps users maintain the data on the net and devices as the encrypted text cannot be understood by ordinary people. The encrypted text appears as an intelligent message and requires a key to decrypt or unscramble the message. The process of changing the encrypted text back into plain text using a key is known as decryption. In cryptography, the process of decryption is essential since the message should be decrypted only by authorized users.

What benefits are offered by Blockchain?

One of the best characteristics of Blockchain is its unique verification method. Using Blockchain, we can improve accuracy by eliminating the requirement for human verification. Blockchain has also helped cut expenses by removing the need for third-party verification. Hackers and intruders have found it extremely difficult to tamper with data because of its decentralized nature. The advantages of Blockchain as a transaction system include security, anonymity, and efficiency. It delivers entire transparency to its users since it is a transparent technology. Furthermore, Blockchain provides a financial choice as well as a tool to protect personal information to residents of countries with insecure or underdeveloped governments.

What makes Cryptocurrency important?

Cryptography is likely the finest approach for securing security-sensitive data accessible today. To encrypt and decrypt data, a unique code combination, also known as a key or calculations, is required, making the approach an effective tool for keeping information safe from prying eyes. Because of the widespread use of the internet for commercial and personal interactions, all sensitive data must be encrypted. Any message you transmit over the internet might be detected and viewed if you don't use encryption. Hackers can expose anything from a private conversation to your family to your bank account information to public scrutiny. This is why cryptography is really important and is widely used by technological companies.

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