What is Encryption and Decryption in Cryptocurrency

Cryptocurrency is a virtual currency that is used to trade, invest and make payments. This digital asset works on blockchain technology. The blockchain is linked together via a coded network called cryptography. And encryption and decryption are the major elements of cryptography.

In this post, we dig into cryptography and the concept of encryption and decryption.

What is Cryptography?

Cryptography, in its essence, is a method or protocol developed to make the blockchain secure from any third-party tampering. Cryptography is a portmanteau derived from the Greek words ‘Kryptos’ which means hidden and ‘graphien’ i.e writing.

Thus, cryptography is a hidden piece of writing i.e code used in blockchain technology.

Role of cryptography in blockchain

Cryptography plays a key role in the blockchain. Some major functions are listed below:

  • It creates a pair of public and private keys for a crypto investor. They use the public key for tracking the digital currency and the private key for investing and redeeming money. Without the keys, the user’s account is not protected.
  • Each block in a cryptocurrency contains a unique code, like a fingerprint that makes it almost impossible to tamper. This hash code is generated using cryptography.
  • User’s digital wallets are secured using cryptographic codes.

How is encryption and decryption used in cryptography?

Encryption is the process of converting plain text into a coded ciphertext that is unreadable for everyone except the sender(keyholder).

Alternatively, decryption is the process of converting the coded ciphertext into readable text for the receiver.

These two elements make sure that the cryptographic algorithm is secure for all the users to trade. This gives an avalanche effect to the blockchain which means a slight change in data can significantly affect the overall output.

Encryption and decryption processes ensure the uniqueness of a blockchain wherein every new input has a new output. Furthermore, the process is very fast-paced.

Thus, encryption and decryption form key elements of a cryptographic network and blockchain technology.

Difference between encryption and decryption

Encryption Decryption
Encryption is the process of converting plain text into code. Decryption is the process of converting coded text back into plain text.
Encryption takes place from the sender’s side. Encryption takes place from the receiver’s side.
Its objective is to convert a plain message into ciphertext. Its main objective is to convert ciphertext into a plain message.
A message can be encrypted using either one of the two keys-public and private. A message can be decrypted using only the private key.

Types of cryptography

There are three major ways in which cryptographic algorithms are performed. They are:

Symmetric key cryptography

In this method, only one out of the two keys is used. This common key can be used for both encryption and decryption processes. However, this poses a limitation to security as only one key is being used between the sender and the receiver.

Symmetric key cryptography is also called Secret-key cryptography.

Asymmetric key cryptography

This method uses both public and private keys for encryption and decryption respectively. Asymmetric key cryptography is the one used in blockchain transactions.

It is also referred to as Public-key cryptography.

Hash functions

Hash is the unique code on every block in the blockchain, like a fingerprint. This method of cryptography does not use any keys. Instead, it utilizes cipher, the algorithm to encrypt and decrypt data to generate hash values from plain text.

The blockchain utilizes only the asymmetric and hash function method.

Wrapping Up

The main objective of blockchain technology is to make it secure, and free from any kind of tampering. Encryption and decryption algorithms help achieve this objective by making the transfer of information between the sender and receiver completely anonymous.


Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes. Discuss with your investment advisor before making such risky calls.