Cryptography’s Use in Bitcoin
Cryptography’s Use In Bitcoin
I personally was never interested in internet security. My deepest knowledge of internet security extended to an online game where I would set up a 4-digit bank pin that protects my stuff from hackers. Good enough for me. As for anything else in internet security, I was never really concerned.
But... It's not all so bad. There’s actually a lot of interesting tools used inside internet security.
One very fascinating and popular currency today is called bitcoin. A bitcoin is a form of digital cryptocurrency, and what makes it so popular is that i can buy you the same things a US dollar can, but it has no federal reserve or government seal saying it is worth something. So, this begs question, “How do a bunch of 1s and 0s hold value?” Well, for that to make sense you’ll have to understand what Bitcoin is and how the world of encryption plays a role.
The blog ‘Imponderable Things’ explains "At a basic level Bitcoin is just a ledger with account numbers and balances. When Bob sends Carol 5 Bitcoins, his balance goes down by 5, and Carol's goes up by 5. There's no gold or government-issued money backing these numbers, just people's belief that the numbers are worth something, and a system that prevents unfair changes(Imponderable Things).” It may all seem simple, but there are complexities to it. The system has a certain magic to make you believe in the 1s and 0s that make it up, a magic called cryptography. It guarantees authenticity between transactions(with a signature) and it aligns all of them together(with a blockchain). The easiest way to explain bitcoin is to imagine you are making a transaction of your own.
Imagine you are setting up a transaction with another person. When you do so you are creating a new line on the ledger and cause a verification process. Because you are sending the bitcoins, you have to sign the transaction so everyone in the world can look at the ledger and see that you have verified this transaction. You’ll need a unique signature so no one can forge your it.
To do this, you will need to use an Elliptic Curve Digital Signature Algorithm(ECDSA). You combine a special key 256 bits long known only to you(private key), the line you are writing onto the ledger, and ECDSA to produce a unique signature 256 bits long. It will be put next to your transaction on the ledger to make the transaction legitimate (ECDSA Wiki). Now, what if one day someone clever came in and wanted to forge your signature. Well, the most sensible way is to take what’s public (your unique signature, the message on the ledger and ECDSA) and work backwards to find out your private key. Well, thanks to ECDSA, that clever someone will find no easy way to find out your secret key. ECDSA is designed to produce a random output, leaving no way to work backwards to find an initial input. The only way to find out a secret key is through process of elimination and guessing again and again. That could take up to 2 to the 256th power of guesses, and, to express how big that is, there isn’t a computer today that can feasibly make that many guesses today. But, I bite my tongue, there are computers being created which will have the computing capability to handle that much arithmetic; quantum computers. For such threats, bitcoin is already preparing countermeasures in the form of stronger algorithms expected to ward off a quantum computer (Lujan Bitcoin).
So this explains how secure it is to make a transaction on bitcoin, but how do people simply just believe in a ledger? It’s just a list. How can you trust that? Well, it has to do with a layer of cryptography built into the ledger.
As you know, the ledger is just a history of all the bitcoins flowing throughout the system. It's the result of all the transactions that everyone knows where bitcoins have ended up. It is how Carol knew Bob has 5 bitcoins to send to her. This is why it's crucial for there to be an agreement how the ledger is kept. It needs to be done by something or someone you can trust. Who could it be and how can they be trusted? The way the creators of bitcoin solved this problem was by creating a different problem. They said that if you solve this encryption-based puzzle, you could manage the ledger. Now, that sounds really far-fetched. I just told you that if someone solved a puzzle, they can manage all the money being moved around on the bitcoin. This should scare you and get you thinking, “Well that just gives power to all the top puzzle mechanics in the world. In other words, computers!!” Well, hold your horses, bitcoin is one step ahead. Bitcoin decided that since it would be easy for computers to crack a puzzle, they would make a puzzle specific to computers. The puzzle set-up works through an algorithm known as SHA-256. It’s an algorithm that functions very much so like the ECDSA algorithm described for the signature-process earlier in the paper. But, what is different is now the job IS to find the secret key. Bitcoin will make a type of 256 bit signature public, and the puzzle is to find a secret key that fits with SHA-256 and produces a signature Bitcoin is satisfied with. Now, as I mentioned earlier, there are 2 to the 256th power of options to go from and there is not any one computer today that can handle that much computational work.
And, that there is the key.
There is not one computer that is working towards finding this code, but millions. It takes millions of computers all working towards one goal of finding a secret key that solves the puzzle Bitcoin has presented. It’s actually pretty fascinating!
So, the ones who take up this task are known as Miners. Miner's set up their computer to listen to the broadcasted transactions of bitcoin, and a miner will write these transactions onto a block. The block is just like the ledger, but with a limit of 2400 transactions. Blocks are linked up in a block chain with one another, and they follow the chronological line of transaction history. New blocks are constantly being added as more transactions are being made. After reaching the limit of 2400 transactions, the goal of the miners is to take the block of transactions and legitimate with a signature. They achieve that signature by solving the puzzle Bitcoin has presented them. When a miner succeeds, their block is added to the block chain and the they collect a prize in bitcoins.