Cryptocurrency: Why It’s Called Crypto?

Meaning

Have you ever wondered why we call Bitcoin, Ethereum, and all of these digital currencies “cryptocurrency”? It’s more than just a fancy term meant to sound tech-savvy! It is a portmanteau word, combining “cryptography” and “currency” to describe how these innovative forms of payment are secured and operated. While the underlying technology can be complex, understanding the basics of the “crypto” aspect of “cryptocurrency” can help you appreciate its technological significance.

Ancient to Modern: The Evolution of Cryptography

Cryptography is actually essential to most modern technologies, but it’s interesting to look back in time and see how its techniques have developed since ancient times. Almost as soon as writing appeared, humans invented ciphers i.e. methods of transforming a message to keep it secret or hidden from unauthorized people… Here’s a brief overview of key cryptographic techniques throughout history:

• Symbol replacement: The most basic cryptography method appears in ancient Egyptian and Mesopotamian writings and is still used today… as a game in kids’ magazines!
• Caesar cipher: This cipher was developed during the Roman era and allowed recipients to decode messages shifted by a certain number of letters. Still quite basic.
• Polyalphabetic ciphers: These ciphers, which include two distinct alphabets, were developed in the Middle Ages after Al-Kindi, an Arab philosopher/mathematician/physician/music theorist (!) developed frequency analysis, which made substitution techniques vulnerable to decryption.
• Thomas Jefferson’s cipher wheel: This device made of thirty-six cylindrical pieces was invented in the late 1700s, and was used until the early 1900s. It served as the basis for American military cryptography until World War II.
• Enigma: The infamous machine was used in World War II, and its cipher was only broken thanks to the early computer technology developed by Alan Turing. This really marks the beginning of our modern era.

Cryptography has come a long way and is now even more advanced, with 128-bit mathematical encryption as standard – that’s a 39-digit number of combinations! The field of cryptography is continuing to evolve, but let’s focus on the cryptographic techniques cryptocurrencies rely on to ensure security and authenticate transactions: public-key cryptography and digital signatures.

Public-Key Cryptography and Digital Signatures

Public key cryptography (PKC) is an encryption technique that uses two different keys – a private and a public key – to secure data. When you create a new wallet to start your journey into the cryptocurrency world, that’s what happens: both keys are generated. As the names suggest, the private key is private, and only you can access it, whereas the public key can be freely shared without compromising the security of the private one. These unique characteristics of PKC make it more reliable than other cryptographic techniques, where the communication of a private key over an insecure connection would jeopardize its confidentiality. In fact, it’s not only a crucial element of the growing cryptocurrency world, but an essential component of modern computer security: email systems, internet protocols, credit cards… They are typically based on RSA, one of the most common algorithms for PKC systems. Interestingly, the algorithm used to secure Bitcoin transactions is a different one, called ECDSA. It is considered lighter, safer and more efficient than RSA to create what is called “digital signatures”.

Digital signatures are another application of PKC: it is a security mechanism that verifies the authenticity and integrity of digital data. It acts as a code that is attached to a message or document to prove that it has not been tampered with along its way from sender to receiver. Digital signatures are like digital fingerprints that rely on PKC and hash functions – a hash function is an algorithm transforming data of any size into a fixed-size output. Cryptocurrencies often use digital signatures to authenticate transactions using PKC, with each message having a different digital signature. They ensure data integrity (the message has not been changed), authenticity (the digital signatures were created by the expected person), and non-repudiation (the person who created them cannot deny doing so).

Challenges and Security Risks

So, now you know why Bitcoin and other digital currencies are called “cryptocurrency”! As amazing it is to think that such a complex technology is at the heart of these digital currencies, it’s not all sunshine and rainbows – there are downsides to this ingenious use of cryptography. On one side, transactions can be slow because of the complex mathematical operations involved. On the other, and this is *really* important, the safety of cryptocurrency transactions relies on keeping the private key, well, private… Remember, if your private key falls into the wrong hands, anyone could access your wallet. So don’t be careless with it – you can never take enough precautions to keep it safe and secure!