Why are digital signatures important?

Digital signatures are often used to achieve three results:

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

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What Is a Digital Signature? | Binance Academy

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What Is A Digital Signature?
  • A digital signature is a cryptographic mechanism used to verify the authenticity and integrity of digital data.
  • We may consider it as a digital version of the ordinary handwritten signatures, but with higher levels of complexity and security.
  • In simple terms, we may describe a digital signature as a code that is attached to a message or document. After generated, the code acts as proof that the message hasn’t been tampered with along its way from sender to receiver.

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

  • hashing
  • signing
  • Verifying.

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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.

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Electronic signatures vs. digital signatures

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.

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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.

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Public-key cryptography, or PKC, refers to a cryptographic system that makes use of a pair of keys:

  • one public key
  • one private key.

The two keys are mathematically related and can be used for both data encryption and digital signatures.

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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.

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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).

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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.

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A cryptocurrency is a digital medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.

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The Proof of work concept existed even before bitcoin , but Satoshi Nakamoto applied this technique to the digital currency revolutionizing the way traditional transactions are set.

In fact, PoW idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.

But, returning to date, Proof of work is maybe the biggest idea behind the Nakamoto’s bitcoin white paper – published back in 2008 – because it allows trustless and distributed consensus.

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