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Blockchain: Cryptography and Digital Signatures

Heng Kiong teaches information technology, including business analytics and management information systems, at a tertiary institute.

Digital signature and its verification is one of the main key concepts behind Blockchain where cryptocurrency applications such as Bitcoin are based upon.

In a Blockchain network, it is important to be able to correctly identify the participants in a transaction by proving that the signature came from the holder of the private key and that the transaction is valid.

Digital signatures provide authentication, data integrity, and non-repudiation, all of which are critical to a Blockchain network. As a result, anyone on the network can trust the transactions even without an intermediary.

Encryption and Digital Signature

A public key cryptography creates an encrypted message, while a private key creates a digital signature.

Use of cryptography

Use of cryptography

Digital Signatures

Beyond encryption and decryption of data, public-key cryptography can be used to create a digital signature to provide authentication, data integrity, and non-repudiation in a Blockchain network.

The following steps explain the process for a digital signature model based upon public key cryptography depicted in the following diagram:

  1. All participating nodes on the Blockchain network have a Private-Public key pair, generated mathematically.
  2. The message in its plaintext form is fed into a Hashing algorithm to generate a hashed message, also known as a Message Digest. In a cryptocurrency application such as Bitcoins, the message contains the transaction issued by the sender.
  3. The hashed message is then signed by the Sender's Private key, and sent over the Blockchain network, together with the message in plaintext format.
  4. The participating nodes on the Blockchain network will now try to validate the message by checking the digital signature to verify that it matches the public key of the address from which the message was being sent by passing through a verification algorithm.
  5. Since the digital signature was created using the sender's Private key, the network can easily prove that the signature came from the holder of the private key by using the corresponding sender's Public key.
  6. The plaintext message is fed through another Hashing algorithm to generate a hash value. This hash value is compared with the hash value from the output of the verification algorithm above. Validation is performed without the sender having to reveal its Private key.

In the case of Bitcoins, the network also verifies that the sender does possess sufficient bitcoins to send and that the sender has not already sent it to another receiver. This is achieved by running through the transaction history, which is public on the bitcoin ledger.

Digital signature model

Digital signature model

Instead of digitally signing the plaintext message directly, the digital signature is formed with the hash of data. The hashed message is a unique representation but a relatively smaller digest of the data. This makes the blockchain more efficient.

Achieving Message Security

Let us now go through why it is so important to use digital signatures in Blockchain:

  • Integrity: Digital signatures and the hashing algorithm ensure that the data has not been illegally accessed and modified by any attackers. This means that data cannot be altered without detection.
  • Authentication: Digital signatures establish trust between a sender and a receiver in a Blockchain network. The receiver can be sure that only the sender could have sent this message.
  • Non-repudiation: The sender cannot deny sending the message as the digital signature can only be created by a sender who possesses the corresponding Private key and no one else.
Hash examples

Hash examples

In summary, Hashing verifies that data has not been modified or tampered with.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2018 Heng Kiong Yap