1. Introduction to Cryptography

How do Bitcoin, cryptocurrency and other blockchains utilize cryptography?

Bitcoin and other cryptocurrencies rely on cryptographic algorithms to function, hence the “crypto” in the name. Bitcoin uses two primary cryptographic methods. The first is asymmetric encryption. A bitcoin wallet is, at its core, a collection of private keys that can be used to sign transactions on the network. Bitcoin and other blockchain technologies utilize cryptographic signatures, which are a form of asymmetric encryption, to guarantee that when you send a Bitcoin to your friend, it was actually you that sent it.

The second is hashing. Bitcoin mining makes use of the SHA-256 algorithm to act as a proof-of-work on the network. Because the output of hash functions can’t be easily guessed, the network can trust that an actor in the network has expended a good deal of energy computing the result of a calculation.

The reason we care that it took someone a lot of work to add a new block to the blockchain is to make it more secure. Every miner has to solve a difficult “hashing lottery” to add a new block, but if it were too easy, anyone could add new blocks quickly to rewrite the blockchain to their advantage.

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