How Encryption Techniques are used to Secure Cryptocurrencies

Encryption can be defined as the process of encoding information so that only the person who owns that information can have access to it. When data is encrypted, it converts the original data known plain text in cipher text which can only be interpreted by the owner of that data.

In other words, encryption is a way of ensuring that critical information and classified data remains protected and no unauthorised person can have access to it. There are various ways of encrypting data even though the most preferred way of doing so is by employing blockchain technology.

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Blockchain networks & functionality

Blockchain networks are often considered to be the base of digital signatures and usually employ data encryption technology. The most common blockchain networks have been found to employ the “public key-private key encryption”. This includes networks such as Bitcoin or Ethereum. In this case, the user has two keys – a public one and a private one. The former is usually shared by the user with others whereas the latter is always kept a secret.

The function of the public key is that it is used for encryption purposes while the decryption of the same is done with the help of the private key. This explains why the latter is not shared with everyone whereas the former is. You can find more information about this from Bitcoin Trader. Both keys have a mathematical relationship with one another. It is usually easy to create a public key from a private key with the help of an encryption algorithm. At the same time, the other way around is not too easy, in fact it is really impractical. Using a public key to make a private key is going to enormously time-consuming especially for the computer systems that we use during contemporary times. Some even say that using these computers for the same may take billions of years.

The private key

Cryptocurrencies are often described mathematical currency, thereby making digital coins nothing more than a piece of information. The users of cryptocurrency employ a blockchain wallet in order to store their money in that format. It is during this storage that the user establishes the public and private key. Once such example is the “eth-lightwallet”. Once this is done, the user will only have to think about protecting the private key. When they are making a digital transaction, they can just use their digital signature for to finalise the process so that the entire process looks authentic.

Proving the ownership of cryptocurrency and that of the digital information are more or less the same thing. This information can be protected by using digital signatures and wallets. A similar digital signature is also employed in enterprise blockchains wherein the authentication of the user is necessary so that the data can be accessed any further.

The magic of encryption

The developers of Bitcoin Core created a feature inside the bitcoin client that allows the user to “encrypt” the wallet that uses some kind of a password in order to protecting it. The application of a password ensures that the cryptocurrency of the user in put under lock and that no one but the user can spend the money. This is extremely helpful since it renders the money stored in the wallets completely useless for anyone who tries to hack into the account by accessing the device to get hold of the bitcoin wallet. The attacker would not know what to do with the money as long as they do not have the password to decrypt the information.

At the same it needs to be remembered that any critical and classified information pertaining to bitcoin is not encrypted by default. In other words, merely installing bitcoin does not guarantee that it is protected and safe from any cyber threat. Anyone who has access to your device will be able to spend all the money that you have stored via cryptocurrency.

Best practices

In addition to the method mentioned above, users can also employ an external tool in order to encrypt the wallet. Most of these tools are do not cost anything and are very easy to use. However, you will be still be required to type in your password before you can have access to your money that you want to spend for any purpose. When you use an encryption code for your Bitcoin wallet, it essentially activates a “spectator” mode for your wallet. A third party can only see your transactions and the amount that remains after the transaction, and nothing else.

The best code used for encrypting the bitcoin funds is by using a password that is very strong and not something too easy to guess. It must contain numbers, letters in both cases and preferably few symbols as well such as @ or #. At the same time, it must be something that you will be able to remember more conveniently than anyone else. After you will need to use the password every time you want to make a transaction.

A bitcoin wallet in a mobile device requires a slightly different method of data encryption. They usually employ a PIN code in order to store their wallet file in the mobile phone. According to some, PIN codes are generally not as secure as encryption keys, yet they provide adequate security. At the same time, there are encryption techniques available for mobile wallets too such as 7Zip, Axcrypt, TrueCrypt, or Irzip.

Lana Martinez is a freelance technical writer living in the Santa Clara. She's a gadget and tech geek who loves to write how-to articles about a wide range of topics. When she's not writing about technology, Lana loves watching and reading mysteries, cross stitching, and attending musical theatre. She's also an avid Doctor Who fan.