What Is a Digital Signature? | Binance Academy

In the context of cryptocurrencies, a digital signature system often consists of three basic steps:

• hashing
• signing
• Verifying.

Hashing the data is not a must for producing a digital signature because one can use a private key to sign a message that wasn’t hashed at all.

But for cryptocurrencies, the data is always hashed because dealing with fixed-length digests facilitates the whole process.

After the information is hashed, the sender of the message needs to sign it. This is the moment where public-key cryptography comes into play. There are several types of digital signature algorithms, each with its own particular mechanism.

But essentially, the hashed message will be signed with a private key, and the receiver of the message can then check its validity by using the corresponding public key (provided by the signer).

Let’s take an example to illustrate the whole process until the final step of verification. Imagine that Alice writes a message to Bob, hashes it, and then combines the hash value with her private key to generate a digital signature.

The signature will work as a unique digital fingerprint of that particular message.

Digital signatures are often used to achieve three results:

• data integrity,
• authentication,
• non-repudiation.

Digital signatures can be applied to various kinds of digital documents and certificates. As such, they have several applications. Some of the most common use cases include: 

• Information Technology. To enhance the security of Internet communication systems.
• Finance. Digital signatures can be implemented to audits, expense reports, loan agreements, and much more.
• Legal. Digital signing of all sorts of business contracts and legal agreements, including governmental papers.
• Healthcare. Digital signatures can prevent fraud of prescriptions and medical records.
• Blockchain.

The major challenges faced by digital signature schemes rely on at least three requirements: 

• Algorithm. The quality of the algorithms used in a digital signature scheme is important. This includes the choice of reliable hash functions and cryptographic systems.
• Implementation. If the algorithms are good, but the implementation is not, the digital signature system will likely present flaws.
• Private Key. If the private keys get leaked or somehow compromised, the properties of authenticity and non-repudiation will be invalidated.

Digital signatures relate to one particular kind of electronic signatures - which refer to any electronic method of signing documents and messages. Thus, all digital signatures are electronic signatures, but the opposite isn’t always true.