This video offers an essential explanation of what a cryptocurrency is and how it is achieved.
- To understand block chain technology and ultimately how it enables Bitcoin, other cryptocurrencies and smart contracts requires us to understand a collection of related technologies and terms. Over the next few videos, we'll explore each individually and then finally bring them all together. To understand public and private keys, we first need to understand what cryptography is. The connection is that public and private keys are one way to enable cryptography.
The term cryptography is a Greek word which means secret writing. It's a way to send a message to someone so that others cannot read the message. The message may be, "Hello, my friend." But as it travels over a network, the words hello my friend cannot be seen by others. It goes from a state of plain text, one that can be read, to cipher text, one that can't. It is said to be encrypted.
When the message arrives at its destination, it must be decrypted so that it can be read again. One of the many forms of cryptography is called the Public Key Infrastructure or PKI. It involves two keys, a public key and a private key. Everyone can see the public key, but only you have the private key and it must be kept secret. Imagine that you have a locked mailbox.
The public key is the address of the mailbox. A person can insert money or a message into that mailbox but cannot retrieve it. The only way to retrieve the contents is to use your private key. As long as nobody gets that private key, your money and messages are secure. Let's now look at this example in the digital world. Computing PKI was invented in the 1970s and provides a simple, clever, and powerful solution to cryptography.
The first step is to have your private key generated. There's a lot of software to do this as a private key is basically a random mix of the letters A through F and some numbers. You can try it yourself at bitaddress.org. Here is an example of a digital private key. When a private key is generated, its pair is also created. That's the public key and it's created using a complex algorithmic process.
The process makes it possible to generate the public key from the private key but makes it exceptionally difficult to figure out the private key from the public key. In other words, it's basically one directional in creation. Now, how do we use this? Whenever you want someone to send you something secret, you first send them your public key. The other person locks the message with your public key and then sends the message to you.
You then open the message with your private key. Someone who tries to intercept the message will be unable to unlock the message. Only you can because you keep your private key and never share it with anyone. We'll discuss later that your keys are stored in what is called a wallet on your computer or smartphone. So, we've seen how PKI enables cryptography. However, let's use PKI to enable proof of authenticity.
Specifically, if you send a message to someone else, how can they know that it was sent by you for sure? For this we'll use a digital signature. A long time ago, documents were sent in envelopes that were often sealed with wax with a unique stamp in the wax. This way, the receiver knew that the envelope came from a trusted source and that it had not been tampered with on its journey. A digital signature is the digital version of the wax seal.
Digital signatures use public/private key pairs to function. When sending an electronic message, the message is signed with a private key. When the message is received and the recipient has your public key, it verifies that the signature was created with the private key pair of the sender. This PKI-based digital signature authenticates that the sender is who they say they are.
If someone attempted to bluff ping you by using another private key, the recipient using your public key would immediately know it was not from you because the public key would not authenticate the private key of the sender. Simple but powerful. The public/private key pair infrastructure I've just described is essential to understanding how block chain technology works. It is the way that all the transactions in a block chain database are authenticated.
While this might seem somewhat abstract right now, soon I will begin to bring it all together. But first, we must continue explaining some other important concepts.
- Blockchain basics
- Public and private keys
- How blockchain enables bitcoin
- Blockchain and the electrical grid
- Blockchain and identity management
- Risks of blockchain