Take out your wallet and pull out a dollar, initial thoughts of our brain arrives to the conclusion that it is a valuable piece of paper, but if you take deep dive in the dollar currency you find a line connecting all the dots that makes that piece of paper valuable (such as the balance of trade, military coercion and threats of force, etc).
There are different types of money: fiat money, commodity money, representative money, fiduciary money, commercial bank money, and the latest addition known as cryptocurrency/digital money.
Today we will be demystifying cryptocurrency. A cryptocurrency is digital currency, secured by applications of advanced mathematical and physics principles known as Quantum Cryptography. Quantum cryptography makes fraudulent activities impossible on the currency.
Cryptocurrency are built on the foundation of blockchain technology creating decentralized networks. Each of these network holds a distributed ledger ( also known as Block). Since cryptocurrency is decentralized and is not controlled by a single person or authority, the security of these digital currencies is very crucial.
Quantum Cryptography uses the concept of digital signatures, using the principles of photons and their physical properties to produce virtually unbreakable encryption systems.
* Photons oscillate in various directions in an optical network, creating random sequences of 1s and 0s.
Encryptions keys are sent through the networks by a protocol known as the quantum key distribution (QKD) protocol. Quantum key distribution uses quantum mechanics to securely transmit encryptions keys.
In broader terms there are three main types of cryptography encryptions : Symmetric-key, Asymmetric-key and Hash functions.
Symmetric-key Cryptography uses a single key for both encryption and decryption process, making it less secure compared to an asymmetric-key which simultaneously creates two pair of keys; an encryption key ( public key ) and decryption key ( private key ), both of the unique keys are generated by the same cryptography algorithm. Finally there are Hash functions this type of encryption uses ciphers to create a fixed length hash value, making it nearly impractical to decipher the hash text.
Cryptocurrency applies multilayers of encryption, it utilizes the Hash Function and Asymmetric-Key. Cryptocurrencies blockchain technology uses a SHA-256 hashing algorithm as their hash function. A single character change in the SHA-256 data can result in completely different output, hence making the key useless.
Hash Functions are responsible for linking one block to another and to maintain data integrity. The slightest change in data could cause the avalanche effect, which makes the blockchain invalid.
Asymmetric-Key makes use of digital signatures, which help provide integrity to cryptography process, they can be easily verified and not corrupted. The generation of the private key is done by using a random number generation algorithm, whereas the public key is generated using a more sophisticated algorithm, known as the irreversible algorithm.
In conclusion combining these multilayers of encryption creates the foundation of blockchain cryptography, making them reliable and secure. Hence creating the next generation of money. Bitcoin is a famous cryptocurrency that uses asymmetry bitcoin keys called elliptical curve ( specifically known as secp256k1). There are hundreds of different cryptocurrency encryption methods, which are left for your discovery!
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Featured image retrieved from: https://www.cfo.com/payments/2019/12/the-5-biggest-trends-in-cryptocurrency-for-2020/