3.1 What is Cryptography in Blockchain?
Cryptography in blockchain means using special math techniques to keep data safe, secure, and private. It helps protect users, hide sensitive information, and make sure that no one can change the data once it’s added to the blockchain.
Why Cryptography is Important:
- It keeps user identities private.
- It secures all transactions so no one can cheat.
- It ensures that data once stored cannot be changed.
Types of Cryptography Used:
-
Hashing: Converts any data into a fixed-length code. It’s like a fingerprint of the data.
Example: The word "block" becomes "3a1d4f..." (a hash). If you change even one letter, the hash changes completely. -
Public & Private Keys: Every user has two keys:
- Public Key: Like your email address (others can send you messages).
- Private Key: Like your email password (you use it to read/send messages).
- Digital Signature: It is like signing a document to prove that you agree with it. In blockchain, it proves a transaction is done by the right person.
Real-Life Example:
Suppose Riya wants to send 1 Bitcoin to Rahul. She uses her private key to sign the transaction. The network uses her public key to verify it's really from her. The data is hashed and added to the blockchain, and no one can change it later.
Conclusion:
Without cryptography, blockchain would not be secure. It is the core technology that builds trust in a decentralized system.
3.2 Public & Private Key Pairs
Public and private key pairs are a core part of blockchain and cryptography. They help keep information secure and allow users to send or receive data safely.
What Are Key Pairs?
- Public Key: Like your bank account number. You can share it with others so they can send you money or messages.
- Private Key: Like your ATM PIN. You must keep it secret. It proves that you are the real owner of the account.
How Do They Work Together?
These keys work in pairs. What one key locks, the other can unlock.
- If a message is encrypted with a public key, only the private key can read it.
- If a message is signed with a private key, anyone with the public key can verify that it came from the real sender.
Example:
Imagine Priya wants to send a secure message to Aman.
- Priya uses Aman's public key to encrypt the message.
- Only Aman can decrypt it using his private key.
- This keeps the message private and safe from hackers.
Use in Blockchain:
- Every blockchain user has a public and private key pair.
- To send cryptocurrency, you use your private key to sign the transaction.
- Others use your public key to confirm that it was really you who sent it.
Conclusion:
Public and private key pairs ensure security, trust, and identity in blockchain networks. Never share your private key, and always verify the public key when sending or receiving data.
3.3 Hash Functions (SHA-256, Keccak)
Hash functions are special mathematical formulas used in blockchain to convert any data into a fixed-size string of characters (called a hash). They help ensure data security, integrity, and uniqueness.
Key Features of Hash Functions:
- Deterministic: Same input always gives the same output.
- Fast: Quick to compute the hash of any data.
- Irreversible: You can't reverse a hash to get the original data.
- Collision-resistant: No two inputs should give the same hash.
- Sensitive: Small input changes create a completely different hash.
1. SHA-256 (Secure Hash Algorithm):
- Used by Bitcoin and many other blockchains.
- Produces a 256-bit (64 hexadecimal characters) hash.
- Very secure and trusted for many applications.
Example:
Input: "hello" SHA-256 Hash: 2cf24dba5fb0a... (64 characters total)
2. Keccak (SHA-3):
- Used by Ethereum (Keccak-256).
- Part of the SHA-3 family but Ethereum uses a slightly different version.
- Also produces 256-bit hashes like SHA-256.
- Designed for extra resistance against certain attacks.
Use in Blockchain:
- Creating digital fingerprints of transactions and blocks.
- Ensuring data integrity (if data changes, hash changes).
- Linking blocks together in the chain (each block has the hash of the previous block).
Conclusion:
Hash functions like SHA-256 and Keccak keep blockchain data secure and tamper-proof. They play a key role in transaction verification, mining, and data integrity across the blockchain network.
3.4 Digital Signatures in Blockchain
A digital signature is a mathematical way to prove that a message or transaction came from a specific person and has not been changed. It works using cryptography (public and private keys).
How It Works:
- Step 1 – Signing: The sender uses their private key to create a digital signature for the message or transaction.
- Step 2 – Verification: Anyone can use the sender’s public key to verify the signature and confirm the message is authentic and unchanged.
Key Properties:
- Authenticity: Proves the message came from the claimed sender.
- Integrity: Ensures the data has not been altered in transit.
- Non-repudiation: The sender cannot deny sending the message.
Example in Blockchain:
- When you send crypto (like Bitcoin or Ether), you sign the transaction with your private key.
- Nodes in the blockchain verify the transaction using your public key.
- If the signature is valid, the network accepts the transaction.
Why It’s Important:
- Secures user identity without passwords.
- Prevents fraud and tampering of transactions.
- Ensures only the owner of the private key can send funds.
Common Digital Signature Algorithms:
- ECDSA (Elliptic Curve Digital Signature Algorithm) – Used in Bitcoin and Ethereum.
- RSA – Used in some traditional secure systems.
Conclusion:
Digital signatures are a core part of blockchain security. They allow users to prove ownership and authorize transactions without revealing their private keys.
3.5 Crypto Wallets: Hot vs Cold, Custodial vs Non-Custodial
A crypto wallet is a tool that allows users to store and manage their cryptocurrency. It doesn't hold the actual coins but stores your private and public keys, enabling you to access and use your crypto.
1. Hot Wallets vs Cold Wallets
Hot Wallets:
- Connected to the internet.
- Examples: Mobile wallets, desktop wallets, browser extensions (like MetaMask).
- Pros: Easy to use, fast transactions.
- Cons: More vulnerable to hacks and phishing attacks.
Cold Wallets:
- Offline storage of private keys.
- Examples: Hardware wallets (Ledger, Trezor), paper wallets.
- Pros: Much safer from online threats.
- Cons: Less convenient for frequent transactions.
2. Custodial vs Non-Custodial Wallets
Custodial Wallets:
- A third party (like an exchange) controls your private keys.
- Examples: Wallets provided by Binance, Coinbase, WazirX.
- Pros: User-friendly, password recovery options.
- Cons: You don’t have full control. If the service is hacked or goes down, you may lose access.
Non-Custodial Wallets:
- You control your private keys.
- Examples: MetaMask, Trust Wallet, hardware wallets.
- Pros: Full control of your assets.
- Cons: If you lose your private key/seed phrase, there’s no way to recover your funds.
Summary Table:
| Type | Online/Offline | Who Controls Keys | Security | Examples |
|---|---|---|---|---|
| Hot Wallet | Online | User or Custodian | Less secure | MetaMask, Coinbase Wallet |
| Cold Wallet | Offline | User | Highly secure | Ledger, Trezor |
| Custodial Wallet | Mostly Online | Third Party | Depends on provider | WazirX, Binance |
| Non-Custodial Wallet | Online or Offline | User | Secure if managed properly | Trust Wallet, MetaMask, Ledger |
Conclusion:
Choose your wallet based on your needs. Use hot wallets for convenience and cold wallets for security. Prefer non-custodial wallets if you want full control of your crypto.
3.6 Wallet Setup Tutorial: MetaMask & Trust Wallet
To start using cryptocurrencies, you need a wallet. Here’s a step-by-step guide to set up two popular non-custodial wallets: MetaMask (browser/mobile) and Trust Wallet (mobile).
1. Setting Up MetaMask (Browser Extension or Mobile App)
Step-by-Step (Browser Version):
- Go to metamask.io and click Download.
- Install the extension for Chrome, Firefox, or Brave.
- Click on the MetaMask icon in your browser toolbar.
- Click on “Create a Wallet”.
- Create a strong password.
- Write down and safely store your Secret Recovery Phrase (also called seed phrase). DO NOT share it with anyone!
- Confirm the seed phrase to complete setup.
- Your wallet is ready! You can now receive, send, or swap tokens.
Step-by-Step (Mobile Version):
- Install MetaMask from the Google Play Store or Apple App Store.
- Open the app and tap “Create a new wallet.”
- Set a password and back up your seed phrase.
- Confirm the seed phrase when prompted.
- You’re all set!
2. Setting Up Trust Wallet (Mobile Only)
- Download Trust Wallet from the Play Store or App Store.
- Open the app and tap “Create a New Wallet.”
- Accept the terms of service.
- Write down your 12-word recovery phrase and store it in a safe place.
- Confirm the recovery phrase to complete the setup.
- Your wallet is ready! You can now send/receive crypto or explore dApps.
Tips for Wallet Safety:
- NEVER share your recovery phrase with anyone. If someone has it, they can steal your funds.
- Use a strong password and enable biometric authentication if available.
- Only download wallets from the official website or app stores.
- For large amounts, consider using a cold wallet (like a hardware wallet).
Conclusion:
MetaMask and Trust Wallet are easy-to-use, beginner-friendly wallets that support multiple blockchains. Follow the above steps to get started and always keep your wallet secure.
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