Date: 21 November 2024
Did you know that there are over 700,000 daily crypto transactions only in Bitcoin? The crypto market keeps hitting new peaks in popularity, attracting more users and increasing the necessity of cybersecurity.
Such systems enhance the efficiency of threat reporting and tracking, allowing cybersecurity teams to respond quickly and reduce risks. This method boosts the organisation’s defence mechanisms and strengthens its ability to withstand the ongoing wave of cyber threats.
Blockchains are considered generally safe since they use cryptography for protection. With the technology developing at an impressive pace, cyber threats also increase. This is why developers work hard to create advanced cryptographic techniques.
Whether you are planning to convert BTC to ETH (crypto-to-crypto) or SOL to USD (crypto-to-fiat), our guide presents core cryptography principles and the latest techniques used in the industry.
Core Principles of Cryptography in Blockchain
The definition of cryptography is utilising algorithms and codes to protect any transferred information. Cryptographic algorithms ensure that any sensitive data can only be accessed and decrypted by those who have permission to access it.
Here’s what principles cryptography looks to achieve and hold:
- Integrity. Once the blockchain records a transaction, nobody can tamper with the data anymore. Cryptography also serves to ensure that nobody plays around with sensitive information while it’s en route to the blockchain.
- Confidentiality. Crypto transactions offer a high level of privacy since they don’t require an intermediary. Cryptography ensures that only authorized participants can access confidential information related to the transaction. Confidentiality is challenged by the necessity to keep the chain transparent and maintain decentralization, which is why encryption ensures that sensitive data remains safe.
- Validation. The idea is to confirm the identities of the parties that participate in a transfer. Special cryptographic signatures are how a user confirms a transaction, and validations serve to authenticate a transfer on the blockchain.
- Non-repudiation. If anyone sends encrypted data, it’s impossible to retract the intention to transfer it.
Cryptography offers superb security levels, but it’s not perfect. Some vulnerabilities include:
- Not using secure channels or protocols. The most famous internet secure communication protocol is HTTPS. Many apps and platforms offer secure protocols as an option, but you are strongly encouraged to use them whenever possible.
- Not using adequate or updated encryption algorithms. Advanced Encryption Standard (AED) is an example of the latest algorithms used for encryption. You should always apply the latest fixes and patches to keep the encryption safe.
- Inadequate key management. Encryption keys should remain private, and that includes their storage and generation. If possible, rotate the keys regularly (change passwords) to keep safety at the highest level.
Advanced Cryptographic Technique
The basic types of cryptography include symmetric and asymmetric cryptography. If the same encryption and decryption are used on both sides (sending and receiving), that’s symmetric protection. Asymmetric cryptography has public and private keys, so only a portion of them have a sharing option. That theoretically makes asymmetric algorithms more secure. Now, let’s see some examples of advanced cryptographic techniques and their features.
1. Homomorphic Encryption
Homomorphic encryption is an algorithm that allows computations to be executed on the data while it’s in the encrypted state. That means you can perform different operations on data without decrypting it, which preserves privacy. A third party can participate in outsourcing and processing the data. They can’t decrypt it without an adequate key, meaning they don’t have access to the original information.
As for blockchain applications, homomorphic algorithms can play a great role in preserving transaction privacy and securing smart contracts. They achieve the latter by allowing contract execution without revealing sensitive details. Let’s say you need to have a particular crypto sum for the transaction. You can confirm that you have it without disclosing the actual sum.
2. Zero-Knowledge Proofs (ZKPs)
Zero-knowledge proof is an encryption form where you can prove that a statement is valid without actually disclosing details about the statement. Privacy coins like Monero use zero-knowledge proof algorithms to preserve maximum transaction anonymity. It allows participants to initiate a transaction without revealing their transfer history or balance. Although ZKP encryption works like a charm, it can also be used for illicit transactions and suspicious activities. It’s why currencies like Solana may face strict regulatory compliance issues although committing to various positive initiatives.
3. Merkle Trees
Merkle or binary hash trees use a special structure to encode data to improve security and simplify verification. You can visually present the Merkle tree as a tree you look at upside down. You use a cryptographic function to transfer data, which becomes a string of letters and numbers. The name for that string is a hash, and the function always produces the same result with the same input. However, you can’t use the result to trace back the original data.
You can mix hashes and create new hashes, which leads to an infinite tree. Another user processes the data using the same function. If they get the same result, they verify the information in the file. That brings us to the biggest advantage of the Merkle tree, which is efficient data validation. The algorithm requires minimal resources and is excellent for managing and validating data on blockchains.
4. Hash Functions
As we already explained, a cryptographic function turns any input into an encrypted result of the desired length. The hash keeps the same size regardless of the data amount, and there’s no reverse engineering possible at the moment.
Hash functions serve to connect transaction blocks and produce the blockchain. Each new block has details of the previous block’s hash, leading to making an immutable and safe ledger. Hashes play a vital role in proof-of-work chains like Bitcoin since they are a major part of the mining process and the network’s security.
Conclusion
Cryptography keeps evolving along with technological progress. Experts assume that elliptical curves and quantum cryptography are the future of this niche. Elliptical curves are already in use by some authorities, such as the US government and big companies like Apple.
Developing improved encryption algorithms is essential for the future of blockchain and keeping crypto transactions secure. Apart from protecting data, that ensures crypto transfers remain decentralised, anonymous, and secure. It ensures that blockchains remain suitable for individual transfers and being used across different industries.
