Is Bitcoin safe to use?
This is one of the most important questions investors ask before buying bitcoins from an exchange. When being introduced to the ever growing world of blockchain technology, it’s a valid question to ask. After all, hacking is on the rise and rumors are spreading of countries engaging in secret cyber wars. The precarious matter of data hacking and identity theft has never been so problematic. The solution; cryptography.
History of Cryptography
In 1998, David Chaum published a paper from the University of California called “Blind Signatures For Untraceable Payments”. The paper proposed a new sort of cryptography granting people the ability to provide proof of payment without exposing time, amount, or identity of the payee. Cryptography was reborn and adopted for use by cryptographic banking systems and electronic voting ballot security. Even though more digital money systems were attempted over the years, all failed to solve the growing problem of double-spending with cryptocurrencies.
The solution came from an unknown creator who went by the name of Satoshi Nakamoto in 2009 when he published the famous “White Paper” of Bitcoin labeled as “A Decentralized Electronic Cash System?”. The report defined a system using peer to peer cryptography without the need for a mediating third party by using the Proof Of Work system — Which forms a record that cannot be changed without having to enter it backward into the validating system of bitcoin miners.
The main purpose of this component of blockchain technology is to create a secure digital identity reference. Identity is based on possession of a combination of private and public cryptographic keys. The combination of these keys can be seen as a dexterous form of consent, creating an extremely useful digital signature.
In the physical world, it is common to use handwritten signatures on handwritten or typed messages. They are used to bind authenticity to the writing. Similarly, a digital signature is a technique that binds a person/entity to the digital data by encrypting it into hash keys.
Input Puzzle – Output Hash
The Bitcoin Blockchain uses Cryptography to create encrypted identifiers – It shrinks the original transaction by using a mathematical algorithm or “puzzle”, generating an output that is often called the message digest or simply the “hash”.
The hash serves the dual purpose of identification as well as integrity verification. An identification string which also produces its own integrity is called a self-certifying identifier.
A Bitcoin wallet is a self-certifying identifier and used also as a secret piece for its private data, which is used to sign transactions and identify ownership. The referenced hash can then be backtracked through the blockchain to validate or prove the balance of the associated Bitcoin wallet. Keys cannot be changed without having to pass network verification again, thus eliminating any possibility of double-spending taking place. The process of re-validating will generate a brand new cryptographic hash which is added to the chain.
Bitcoin uses the SHA-256 algorithm to encrypt hash keys which are sized at 32 bytes.The hash encrypts messages from sender to receiver to prevent tampering while transmitting. making it highly improbable that another message sequence would produce the same exact hash output.
Today, many people use cryptography for coding and decoding information between parties so that only those for whom it is intended can read and process it. This brilliantly created crypto provides the ultimate protection when processing transactions. You can place your trust in this new and exciting digital currency. After gaining insight into Bitcoin’s structure, it’s easy to see how it provides security that is second to none.