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16.6. Cryptography and Blockchain

16.6.1. Using Cryptography: It might as well be random

In this section, we talk about how cryptography is a fundamental part of blockchain, cryptocurrencies, and any other application that involves blockchain. There are two main ways that cyrptography fits in. The first we already saw: That a standard cryptography algorithm is used to generate a hash code. Why do it that way? We’ll explain that next. Later, we talk about how cyrptography allows a seeming contradiction: On the one hand, people can perform tasks like send messages and conduct transactions while remaining anonymous (if they like), while on the other hand, the recipient of the message or transaction can be confident about the “identity” of who they are dealing with.

16.6.2. Generating a Hash Code

We often want to generate a hash code for some information. Specifically, we will take an arbitrary string of any length and generate a fixed-length number in return. As mentioned in the introduction, we assume in this tutorial that SHA-256 will be used to crate a 256-bit (or 64 hexidecimal charater) code.

There are two key features of SHA-256 that we rely on to make the system secure. First, given a hash code, there is no practical way to recover any information about the original string used to generate it. SHA-256 will effectively slice and dice the original string to the point that no meaningful information is retained. We will never have need to undo the hashing process to recover the original message used to create the code. (In fact, so far as anyone knows, this is impossible. Cryptography systems depend on that to be true to work securely.) The second important property is that minor changes to the input string lead to unpredictable changes in the resulting hash value. For example, switching two letters in the input string will change the resulting hash code in unpredictable ways. Going up by one letter (like changing an ‘a’ to a ‘b’) will also change the resulting hash code in unpredictable ways. Not only is this property necessary to make sure that nobody can deduce the original information from the hash, but this property is also critical for the “proof of work” concept used by a system like Bitcoin (see Mining).

16.6.3. Encrypting and Decrypting

The second fundamental cryptographic service that we rely on is the ability to securely encrypt a message. This means that a string (of arbitrary length) can be given to an encryption process, and the resulting output string cannot be used to deduce the original message. But unlike hashing, there has to be a way to decrypt the message. When given the decryption key, the process can be reversed, the original message can be recovered from the encrypted string. So, of course we use different algorithms for encrypting/decrypting than the SHA-256 algorithm that we have been using to create a hash code. For one thing, the encrypted message is not of a pre-determined fixed length (it can’t be fixed-length if its going to contain all of the information from the original variable-length message).

Blockchain systems often use public-key cryptography to “identify” participants and confirm which participant originated a message or transaction. At the same time, this process allows a participant to keep their “real world” identity secret, while still convincing everyone else involved that they have the right to make a given transaction.

To start, a participant generates a coordinated pair of keys: their public key and their private key. They use a cryptographic hash function to do this for the usual reason, that the resulting hash cannot be reverse engineered. The point to the keys is that they are functional inverses of each other. That is, you can use either one to encrypt a message, and then use the other one to decrypt the message. The participant will then publish the public key, and maintain the private key in secret.

So now, the participant can encrypt their signature on a message or transaction using the private key. Anyone with the public key (which ought to be anyone who is interested, because the public key is meant to be exactly that – public) can then verify, with little computational effort, that the participant signed it. They do this by decrypting the encrypted signature with the public key. The result should be whatever the sender claims it would be to identify themselves. At the same time, it is computationally infeasible for anyone without the private key to sign a message and pass it off as signed by the participant. Because that public key will just decrypt to gibberish if someone tried. This is essential in public key identity systems to verify who originated a message, such as a financial transaction. Note that what this means is that we can know that the holder of the private key that matches this private key did the encryption of the signature (and so is authorized to do this transaction). But that does not mean that we know who this person is, beyond the fact that they hold the private key. This is what allows users to be anonymous. You know their public persona within that public key ecosystem, but you cannot necessarily relate that back to their “real world” identity.

Now we are going to demonstrate how something called RSA encryption is used to do this. To see how this works, you should type some message that you would like to be encrypted and then decrypted. We suggest that you type some real phrase rather than just gibberish characters, so that its easy for you to see that the decryption is done correctly.

Next, we have generated for you public and private keys. You will use these to sign messages and decrypt the message that you typed above. We make it easy for you to copy and paste, just click on the button to the right of the key that you want to use to copy it.

In a real application, you would make your public key, well, public. That way, anyone who wants to verify that a message really comes from you can do it. Or, anyone who wants to send you a message that only you can read can do so. This is because when the public key is used to encrypt a message, only the matching private key can decrypt it. For this example, assume that someone wants to use your public key to encrypt the message that you typed above. By copying the public key into the box, you will see that the message is encrypted.

We will now use your private key to decrypt your message. When someone sends you a message signed with your private key, you will be able to decrypt it by using your private key. This is why RSA encryption is an asymmetric algorithm because you can only encrypt messages with a public key and decrypt them with your own private key.

In a real public/private key system, you would never want someone to find your private key! Because if they do, then they will be able to pretend that they are you (which means that they could do all of your transactions, like manipulate a bank account that is tied to this private key). Or, they will be able to read messages that were encrypted with your public key, and therefore were only intended for you to be able to decrypt.

You can see that the process is reversable. Simply reverse the use of the public and private keys in the widgets above, to see that this can go in either direction.

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