Many people have heard of the term “cryptocurrency”, but they are unsure of the origins of this new addition to the English language. The second half of the word is rather straightforward, as a currency is most easily understood as another term for money. In most cases, a currency is a type of money that is used in a certain geographic area or by a particular group of people. The first part of the word is what throws people off and can actually seem rather scary at first. In reality, crypto is simply a shortened version of the term cryptography. A simplified definition of cryptography is any kind of method to mask a message that is sent from person A to person B while person C is also watching. A specific form of cryptography, known as public-key cryptography, is at the core of Bitcoin and other cryptocurrencies, which have taken the world by storm over the past few years.
Cryptography is really nothing more than a tool for secure messaging. Back in the days before computers, cryptography was basically used as a secret language to prevent messages being read in a situation where they have been intercepted by a third party. For example, if two allied countries needed to message each other during times of war, they would make sure to use some kind of mutually understood code to obfuscate the messages they were sending each other over a war-torn piece of land. This kind of guard against the prying eyes of an enemy, or even a neutral third party, is at the core of Bitcoin’s backbone.
What is Public-key Cryptography?
Public-key cryptography was a huge breakthrough in computer science because it allowed two parties to securely send messages to each other without having to discuss the terms of their hidden code before the messages were sent. In other words, it would be impossible to send an encrypted message to someone you didn’t know on the Internet without the use of public-key cryptography.
There are two keys in this form of cryptography: the public key and the private key. The public key is what can be sent to anyone who wishes to send you an encrypted message. The message is then encrypted with that public key, but it can only be decrypted by the person who owns the private key attached to that public key. This means that even the writer of the message cannot decrypt the message after it has been encrypted.
How Cryptography is Used in Bitcoin
As you may know, there are also public keys and private keys involved with Bitcoin. The reality is that the public keys on the Bitcoin ledger are kind of like the account numbers for different Bitcoin addresses, while the private keys are the passwords to those accounts. Much like you need a private key to read or sign a message in public key cryptography, you also need the private key of a Bitcoin address to send a payment on the Bitcoin network. At the end of the day, all you are doing when you send a Bitcoin payment is signing a transaction with your private key. This is the reason that private keys need to be guarded with extra safety nets, such as paper and hardware wallets. After all, the person who owns the private key to a Bitcoin address is really the person who controls the bitcoins contained in that address.