Cryptocurrencies emerged as a form of digital asset and/or currency that operates on decentralized networks. They use cryptography to secure transactions. Understanding the basics of cryptocurrencies and the underlying blockchain technology is critical for law enforcement investigators dealing with cryptocurrency-related crimes.
Basic Concepts
There are a number of key concepts that contribute to the existence of cryptocurrencies:
Decentralization
Decentralization refers to the distribution of authority, control, and decision-making across a network of participants rather than relying on a central authority. It is a core philosophy behind the creation and functioning of blockchain-based systems, aiming to eliminate the need for intermediaries like banks, governments, or other centralized entities.
Normally, when you use money like dollars or euros, a central authority like a government or a bank controls how much money is made, who can use it, and who can see or make the transactions. With cryptocurrencies, this control is distributed among many people who use the blockchain.
Blockchain Technology
A decentralized and distributed digital ledger system that securely records and verifies transactions across multiple computers or nodes. It operates through a chain of blocks, where each block contains a collection of transactions.
This blockchain is like a shared online digital ledger that keeps track of transactions with a particular cryptocurrency, like Bitcoin or Ethereum.
Now, imagine that whenever someone wants to send or receive cryptocurrency, they create a digital record of that transaction and add it to the blockchain. This record includes details like who sent the cryptocurrency, who received it, and how much was sent.
Just one person doesn’t create the blockchain. It’s created by many people, also known as miners or validators, who use their computers to solve complex mathematical puzzles.
Once a majority of the network’s participants agree that a particular record is correct, it gets added to the blockchain. This agreement is reached through a consensus mechanism, which is a set of rules that all participants follow.
Cryptography
Essential encryption techniques serve as foundational components of the blockchain landscape, guaranteeing the safety of user data and the protection of transaction details. Cryptography is this critical component of blockchain technology that makes it possible to create a secure, tamper-proof and decentralized ledger. Without cryptography, blockchain would not be nearly as secure or reliable.
Benefits of Cryptography
Cryptography’s role in the blockchain realm revolves around thwarting double-spending, reinforcing participant security, and mitigating the influence of external entities on users. Cryptographic technologies employ mathematical codes to encode and transmit data values in a fortified structure.
Cryptography functions as a mechanism guaranteeing the secure transmission of data or messages between the transmitter and the recipient. The sender encrypts the transmitted data using a designated key and algorithm. Upon reception, the receiver decrypts the data to retrieve the original message. There are different cryptographic techniques where this comprehensive cryptographic process relies on encryption keys for execution.
Forms of Cryptography In Blockchain
Let’s swiftly explore the assorted categories of Cryptography found in blockchain technology.
- Symmetric Cryptography: This category employs an encrypted code or cipher to transform provided information into ciphertext. It represents the earliest form of cryptography, where both the sender and the recipient utilize the same key for both encryption and decryption.
- Asymmetric Cryptography: As the name implies, Asymmetric Cryptography employs distinct keys for encryption and decryption, differentiating between the sender and the receiver. Public and private keys collaboratively facilitate information transmission. While transmitting the message, the public key handles encryption, while decryption requires the recipient’s private key for unlocking. Additionally, the incorporation of digital signatures alongside private keys enables online decryption via the recipient’s public key.
- Cryptographic Hashing: It revolves around transforming plain text into a cryptographic hash—a distinct string of data—utilizing cryptographic algorithms. Data subjected to cryptographic hashing is irreversible, signifying its significance beyond the preceding two cryptography techniques. Furthermore, the hashing process facilitates data compression into a concise text string, effectively reducing substantial data volumes.
Law enforcement’s understanding of these core concepts is essential for addressing cryptocurrency-related crimes effectively.
