How Does Blockchain Encryption Work?

Add3, Content

May 22, 2024

10 min


Cryptography is the art of transforming information into an impenetrable code. It harnesses a blend of mathematical techniques, keys, passwords, and precisely crafted algorithms to render original data unreadable. In this intricate process, raw data undergoes a metamorphosis, transforming from plaintext into ciphertext. This form remains inscrutable until it encounters a specific key designed for deciphering.

But why is cryptography so crucial in the context of blockchain? The answer lies in its multifaceted role as a digital shield, guarding sensitive information against malicious forces and fortifying the core principles of blockchain technology: blockchain security, transparency, immutability, and decentralization.

This comprehensive article delves into the significance of cryptography within blockchain ecosystems, its fundamental roles, and its diverse applications. From encrypting transactions to securing public data and ensuring end-to-end privacy, cryptography is the pillar that upholds the trust and security of blockchain networks. We also examine the two core techniques it employs—symmetric encryption and asymmetric encryption—and how they contribute to the integrity and resilience of blockchain ecosystems.

What is Cryptography in Blockchain?

Blockchains are commonly built upon two main safety pillars: cryptography and hashing. At its core, cryptography safeguards data against unwarranted intrusion. Its mission is to secure transactions that flow between two nodes within the network. In other words, cryptography acts as a guardian of messages in the peer-to-peer network. It fortifies the integrity of block information while hashing forges the unbreakable links between blocks in the blockchain. Cryptography generates the digital protection and anonymity of participants and transactions while fending off the threat of double spending. It ensures that transactions within the blockchain network remain veiled, accessible only to those with the keys to unlock their message. 

The word "cryptography" is a combination of two ancient Greek terms: "Kryptos", meaning "hidden", and "Graphein" meaning "to write". It encapsulates the essence of concealing information during communication. This cloak disguises what is not intended for the eyes of third parties. 

Encryption, the offspring of cryptography, is the art of transforming information into an impenetrable code. It employs a fusion of mathematical techniques, passwords, keys, and a meticulously crafted algorithm to render original data unreadable. This process transforms the raw data into plaintext and turns it into cipher text. This form cannot be deciphered without a specific key. When an authorized user seeks to access or decipher this cryptic data within a blockchain, a key is an essential interlocutor that converts an encrypted message into its original form. While cryptography encrypts messages traversing the peer-to-peer network, hashing secures block information and interlocks the very essence of the blockchain—the blocks themselves. 

Key Cryptography Terms:

Encryption: The transformation of regular text (plaintext) into an unpredictable sequence of bits, known as cipher text. 

Key: An essential piece of information necessary to unlock the message hidden within a cryptographic algorithm. 

Decryption: The reverse encryption procedure, turning a random sequence of bits into its original plaintext form. 

Cipher: A mathematical operation, or in other words, a cryptographic algorithm, employed to transmute plaintext into cipher text—a sequence of bits with seemingly no rhyme or pattern. 

Role of Cryptography in Blockchain

Encryption in blockchain is not just a security measure; it is the essential mechanism guarding sensitive information from falling into the wrong hands. It is a digital shield against misuse and forgery. The essence of blockchain data lies in its immutability, where, once recorded, information remains unaltered. Thus, blockchains deploy this shield for heightened security, anonymity and trust within the network. 

When the data enters the blockchain, it transforms an algorithmic puzzle. This encryption ensures the data's authenticity is proven before being etched into the blockchain. It's akin to a security checkpoint, allowing only verified data to pass through. The data is encrypted, securing its passage into the immutable ledger. 

Cryptography champions two core techniques of encrypting data: symmetric encryption and asymmetric encryption. 

Symmetric encryption involves a shared secret key between the parties involved. Thanks to this key, it is a shared language only the intended participant understands. It ensures data privacy while preventing external intrusions.

Asymmetric encryption employs digital signatures for verification. Every transaction that finds its way onto the blockchain is sealed with a sender's digital signature. This process guarantees the transaction's integrity and ensures the data remains uncorrupted. 

Blockchain's decentralized, peer-to-peer nature eliminates the need for central authorities such as banks. However, this independence means the nodes don't inherently trust one another. Therefore, cryptography is deployed as a layer of data security that obscures unsecured channels. It maintains the sanctity of transactions, preserving their integrity even in an unregulated environment.

Applications of Cryptography in Blockchain

Cryptography has a successful track record of safeguarding data and transactions, and it is used for many applications within the blockchain ecosystem. Here's a list of cryptography applications in blockchain networks.

1. Password Encryption: Cryptograph's role in blockchain can extend to access control. When users log into their blockchain accounts, their passwords undergo a process known as hashing. This cryptographic technique transforms passwords into a secure hash value, rendering them unreadable. Even if unauthorized individuals gain access to the password database, deciphering these hashed passwords becomes a near-impossible task. Hence, cryptography acts as the gatekeeper to passwords, preventing illicit access. 

2. Cryptocurrencies: Cryptocurrencies like Bitcoin and Ethereum are the face of blockchain's cryptographic prowess. They both employ encryption extensively to secure transactions and combat fraud. Complex algorithms and access keys are the essential tools cushioning these digital assets. Using key pairs ensures that transactions remain temper-proof and virtually immune to counterfeiting. 

3. Internet Security: Web browsing security is paramount for all users, and cryptography is pivotal in shielding online interactions. When you engage in web browsing, protocols like Secure Sockets Layer (SSL) and Transport Layer Security (TLS) come into play. These protocols utilize public key cryptography to encrypt data between web servers and clients, establishing secure communication channels. Cryptography prevents man-in-the-middle attacks and infiltration of eavesdroppers. 

4. Online Authentication: Digital authentication relies heavily on cryptography. Whether you are logging into a computer, accessing a bank account, or using a secure network, cryptographic techniques come to the rescue. Authentication protocols use cryptography to verify a user's identity and access privileges. Even the storage and verification of electronic signatures operate within cryptography. It's the digital key that unlocks secure access. 

5. End-to-end Encrypted Conversations: Cryptography techniques also ensure the confidentiality and privacy of two-way communications. Video chats, instant messages, and emails benefit from this security layer. Even with basic encryption, messages remain exclusively viewable by their intended recipients. However, end-to-end encryption takes this protection to new heights. Apps like WhatsApp and Signal employ this advanced encryption to guarantee users the utmost privacy in their conversations. 

Types of Cryptography

Symmetric-Key Cryptography:

Symmetric-key encryption, also known as secret-key cryptography, revolves around using a single key for data encryption and decryption. While it's an efficient method for securing information, some risks may arise in securely exchanging this common key between the sender and receiver. 

Imagine this scenario: You and a friend want to communicate securely using symmetric-key encryption. You both possess the same secret key to lock and unlock your messages. When you send a message, you lock it with your secret key, turning it into a jumble of characters that are incomprehensible to anyone without the same key. Your friend receives and unlocks the encrypted message using their identical key, revealing the original message. 

This method, however, raises a crucial challenge—how do you securely share this secret key in the first place? If a malicious actor intercepts the key during transmission, your communication becomes vulnerable to threats. This is why symmetric-key encryption, while efficient, may not be the primary choice in blockchain security. Still, it's a vital puzzle piece in understanding encryption technology. 

Features of Symmetric-Key Cryptography:

Secrecy: Symmetric-key encryption is often described as secret key cryptography because both parties possess the same secret key to maintain confidentiality. 

Bulk Encryption: Symmetric-key encryption is a good fit for bulk encryption tasks, allowing for the secure transmission of large volumes of data.

Efficiency: This method requires less processing power, ensuring faster data transfer. This is particularly essential in blockchain operations, where efficiency is key to swift operations. 

Asymmetric Key Encryption:

Asymmetric key encryption, also known as public-key cryptography, operates on the principle of using two distinct keys—a public key and a private key— for encryption and decryption, respectively. Unlike symmetric encryption, where the same key is employed for both tasks, this method enhances security by separating these functions. 

Imagine a digital lock and key system: the public key serves as the digital lock, capable of encrypting data. The private key acts as the exclusive key to unlocking and decrypting data. The duality ensures heightened security, especially regarding digital signatures and ownership verification in blockchain transactions. 

Features of Asymmetric-Key Cryptography:

Public Key Cryptography: Asymmetric encryption is often described as public key cryptography due to its reliance on a pair of public and private keys.

Secret Key Sharing: It plays a remarkable role in sharing secret keys for symmetric cryptography, enhancing the security of these keys during transmission. 

Processing Time: Due to its dual-key nature, asymmetric-key cryptography may require more processing time than symmetric encryption. 

Web Server Authenticity: It contributes substantially to ensuring the authenticity and security of web servers, fostering trust in online transactions.

Hashing in Blockchain

Properties of a Cryptographic Hash:

Hashing is a cryptographic technique that transforms any type or size of data into a unique string of characters. This transformation serves a crucial purpose in the blockchain ecosystem. Notably, hashing operates as a one-way function. When data enters a hashing algorithm, it produces a distinctive string, or hash, of fixed length. Importantly, this hash cannot be reverse-engineered to reveal the original input data. This one-way nature of hashing ensures the irreversibility of the process, contributing to data security. 

The average person encounters hashing regularly, often in the context of passwords. For instance, when you create an email account, your email provider doesn't store your password. Instead, it employs a hashing algorithm to process your password, resulting in a "hash" that gets stored. When you log in, the provider hashes the entered password and compares it to the stored hash. Only when these hashes match can you access your email. This way, hashing ensures user privacy even in a cyber attack on a website's database. 

In blockchain networks, hashing plays a pivotal role. Mining, the process that underpins cryptocurrencies, revolves around executing a series of SHA-256 hashing functions. This process is employed for various functions, such as creating new transactions (governed by Merkle trees), timestamping them, and linking them to the preceding block. When a block of transactions is attached to the blockchain, consensus among network operators is reached, ensuring the ledger's integrity. Attempting to reverse a transaction that has been hashed is an unattainable task due to the immense computing power required and the irreversible nature of hashing. Thus, prominent blockchain networks use hashing in their consensus algorithms, such as Bitcoin's Proof-of-Work system. 

Advantages of the Hash Function in the Blockchain:

—The transaction bandwidth is significantly cut down.

—Any potential alterations in the data block are impossible.

—Verifying transactions is easier.

Uses of Cryptographic Hash Functions in Blockchain:

Securing Public Data: As blockchains are public and transparent, cryptographic hashing safeguards data from malicious actors.

Transaction Verification: Transactions undergo verification using hashing algorithms before being added to the blockchain. Confirmed transactions become part of the network's unchangeable chain of blocks.

User Data Protection: Cryptographic hashing uses mathematical codes to protect user data, ensuring only authorized parties can access and process transactions.

Continuous Advancements: The dynamic nature of blockchain technology continually introduces new cryptographic tools, enhancing security and functionality. 

Advantages of Cryptography in Blockchain:

The power of cryptography has brought numerous benefits to blockchain technology in terms of security, transparency, immutability and decentralization. 

1. Encryption: Cryptography employs asymmetric encryption to safeguard transactions, ensuring that sensitive information and private communications remain shielded from unintended parties. In other words, this robust encryption mechanism prevents unauthorized access to critical data. 

2. Immutability: Cryptography in blockchain fortifies the bonds between blocks, ensuring their secure linkage while upholding the integrity of stored data. This cryptographic immutability in blockchain prevents hackers from generating valid signatures for fraudulent transactions. 

3. Security: Encrypting and accessing data through a combination of public and private keys creates a waterproof barrier against data manipulation. Cryptographic hashing further bolsters security, rendering the blockchain virtually tamper-proof. 

4. Scalability: Cryptography renders transactions irreversible, fostering trust in the digital ledger's accuracy. This scalability in blockchain ensures that a vast number of transactions can be securely recorded on the network, paving the way for seamless growth. 

5. Non-repudiation: Digital signatures, an offshoot of cryptography, introduce non-repudiation into the blockchain. They act as irrefutable proof of message origin, curbing any attempt by the sender to disown their actions. Each input value's unique hash function ensures that messages remain distinct, enhancing accountability.

6. Prevent Hackers: Digital signatures' power lies in their ability to render data tempering ineffective. Any alteration to data makes the digital signature invalid, effectively warding off malicious attackers. 

Disadvantages of Blockchain Cryptography

Although cryptography significantly contributes to blockchain technology, it has drawbacks. Here are a few limitations of blockchain cryptography. 

  1. Information Accessibility Challenges: Blockchain's vigorous encryption and digital signatures, while invaluable for security, can inadvertently create accessibility challenges. Heavily encrypted data may prove difficult to access even for legitimate users during critical decision-making moments. Additionally, the network is susceptible to attacks that intruders can launch, potentially leading to temporary disruptions.
  2. Limited High Availability: High availability, a cornerstone of information security, cannot be solely provided through cryptography. While cryptography fortifies data integrity, it falls short in defending against threats like denial of service attacks or complete system breakdowns. Complementary methods are essential to bolster overall system resilience. 
  3. Poorly Designed Protocols: While powerful, cryptography can only sometimes shield against vulnerabilities and threats from inadequately designed protocols, procedures, and systems. Effective defence against these issues necessitates meticulous design and fortification of the underlying infrastructure. 
  4. Costs: Cryptography implementation demands a substantial investment of time and financial resources. In the case of public key encryption, establishing and maintaining a public key infrastructure entails significant costs. Integrating cryptographic techniques into data transmission and processing can also introduce latency, potentially impacting system performance. 
  5. Vulnerability: Complex mathematical challenges are the backbone of cryptographic techniques. However, these techniques become vulnerable if advancements in mathematics enable more efficient resolution of these challenges. Any breakthrough in solving such mathematical problems could compromise the security of cryptographic mechanisms. Cryptography's vulnerability is an ever-present risk in blockchain ecosystems. 


Cryptography's influence on blockchain is profound. It secures passwords, shields cryptocurrencies, fortifies online interactions and protects user data. Cryptographic hashing ensures blockchain immutability by rendering transactions irreversible.

Cryptography's advantages in blockchain are evident. It delivers encryption, immutability, security, scalability, non-repudiation, and defence against malicious actors.

Yet, challenges persist. Robust encryption may hinder accessibility and expose networks to attacks. Cryptography alone can't guarantee high availability or shield against poorly designed protocols. It can also incur costs and introduce latency, potentially facing vulnerabilities when mathematical advancements outpace security measures.

Cryptography isn't merely a security component in blockchain; it's the foundation, upholding confidentiality, integrity, and trust. As blockchain technology evolves, cryptography remains pivotal, offering opportunities and challenges requiring prudent navigation to unlock its potential fully. 

As difficult as it seems, cryptography and hashing are essential components for the safety of a blockchain platform. Add3 offers exclusive crypto services for mining, staking and liquidity that utilize the latest technology in cryptography, ensuring your token's safety.