Introduction to Blockchain Technology. Tiana Laurence

      2 Key parts of blockchain technology

      Blockchain is a combination of old technologies that have been structured in a new way. In this chapter you will learn more about the key technologies that are used to create a blockchain and the network that supports it. This will include cryptography, ledgers and public witness.

      Cryptography is a crucial part of blockchain technology and has been around in one form or another for a very long time. The first known encoded messages occurred in Egypt and Mesopotamia over 3,000 years ago. You will learn about this in depth in the following sections, including how chains are created, what a cryptographic hash is and how encryption works.

      In the following sections you will discover how blockchains are created and how the information is secured within them.

      You will discover how blockchains use economic incentives to develop resilient public witnesses that adhere to an agreed-upon ruleset. These are the concepts of mining and cryptocurrency that spread the blockchain data across a network.

2.1 Cryptography

      Cryptography is the encryption of data so that it is only known by the intended parties. It is one of the most important human inventions and has a very long history. Ancient Greeks and Romans used to send secret messages by substituting letters only decipherable with a secret key.

      During World War II innovation in encryption was pushed to new heights, because messages concerning vital information such as troop movements were broadcast. Anyone with a radio could listen to them, and so it was vital that only the intended audience could understand the messages. The Germans developed an encryption machine called Enigma especially designed for the German military (including the navy) so they could send messages over the radio. Later sciences developed a new method that allowed anyone to send each other private and secure messages. In this section you will uncover how encryption works and how we use it today to send secure messages and secure blockchain data.

Machines that encrypted data in the past

      The Enigma device was revolutionary. It changed each letter in a complex manner. One letter would swap for another letter multiple times via mechanical rotors. The number of rotors added to the difficulty of the encryption. Only someone with a daily encryption sheet that had the key would know how to unwrap the letters.

      Enigma was the strongest encryption method at the time. Eventually, allied forces uncovered how the Germans were encrypting their messages. Joan Clarke and Alan Turing were important code breakers. They would decode messages every day, but this was tremendously difficult.

      The Germans kept adding new rotors that would swap the letters more times. Each new rotor added to the mathematical difficulty and eventually made it nearly impossible for Joan Clarke and Alan Turing to solve the encryption key for that day.

      The need to solve the German’s encryption key led to the development of a mechanical computer called The Bombe. With help from Polish code breakers, Alan Turing developed it at a British government security facility called Bletchley Park. The Bombe could quickly solve the encryption key that was being used by the Germans that day. The Enigma, like all other encryption before, was using what is known as symmetric key encryption. The same key was used to encode a message and decode it.

Modern encryption

      The next big leap in encryption did not come until 1975 when Whitfield Diffie and Martin E. Hellman wrote a paper called “New Directions in Cryptography”. In it they described a brand-new way of encoding messages. It allowed anyone to send a secret message to another person they had not had contact with before, even without the recipient’s encryption key.

      If you remember from Enigma, the encryption key was needed both to encode and decode a message. The encryption technique that Diffie and Hellman developed is commonly known as public-key cryptography or more technically “asymmetric cryptography”. It uses a pair of keys, both a public key that everyone knows so they can send you an encoded message and a private key only you know so only you can decode messages sent to you.

      Asymmetric cryptography allowed, for the first time, anyone to encrypt a message using the recipient’s public key, whilst the encrypted message could only be read with the recipient’s private key. Private secure communication that we now enjoy on the internet and our phones is all possible thanks to asymmetric cryptography. It is one of the essential technologies that allows blockchain technology to exist. It also allows cryptocurrency to be sent securely from one address to another.

Private and public keys

      Let’s take a look at how blockchains use asymmetric encryption, known as public-key cryptography, to secure the transfer of cryptocurrency from one address to another.

      Blockchain ledgers are widely distributed public accounts that let anyone see who has what cryptocurrency and the full history of that coin over time. Meaning you can look up any transaction and see who sent it.

      Asymmetric encryption allows a sender to transfer cryptocurrency to the recipient without someone else being able to steal it. It allows them to do this without having met or exchanged information. As long as the sender has the public key of the recipient, they can send them cryptocurrency.

      The public-key on a blockchain is the “address”. The address and the private key are connected mathematically and have specific fascinating mathematical properties. The public key and private key are created together by combining randomly chosen, ridiculously huge prime numbers. Prime numbers are whole numbers that can only be divided by themselves.

      If