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Everything you need to know about Cryptocurrency and Cryptography

Cryptocurrency

Cryptocurrency is any currency that virtually exists. Cryptocurrency uses cryptography to secure and maintain transactions. The legal validity of cryptocurrency is still not declared by the Government of India. At the request of RBI, the Government made a bill in 2021 to ban the holding and operations of cryptocurrency in the whole country. It gained a lot of disagreement from the members. But from the recent actions of the Government, it can be seen from (the announcement) of the Union Budget FY22-23. They have taxed the trading of Virtual assets at 30%. Does that ring a bell? Yes, it is right. And the goal of Digital India can be furnished by the launch of the digital rupee by the RBI.

Cryptocurrency is virtual. It is a digital asset, you can't hold it in your hand or show it to your friends. It is a way of earning other than the Stock Exchange to a wide range of people. Most students invest in crypto even though it has many risk factors, it also has a higher chance of paying back their investments. You need proper network security before you proceed with trading cryptocurrencies, as scams and hacks might happen right from your computer without your knowledge.

A payments service that doesn't need any bank verifications is cryptocurrency. Cryptocurrency uses cryptography which makes it anonymous on who knows what. Cryptocurrency uses encryption to ensure the safety of transactions. All the details will be available in a public ledger. This currency is stored in digital wallets. In fact, the first Cryptocurrency was Bitcoin (BTC) which was released in 2009. It is known as one of the best Cryptocurrencies to date. Ethereum (ETH) was launched in 2015. It is the second most popular cryptocurrency after Bitcoin.

How are they built?
Cryptocurrencies are built through blockchain technology. Blockchain is something that can bring transparency to the system of virtual currency. They work through a decentralized public ledger in which the holders can record transactions. It brings value to a long-term store. Creating a cryptocurrency might cost you anywhere around $2000 to $5000. It usually takes 1 to 6 months to develop a cryptocurrency from scratch. But if you base another and create one, it might take a few weeks to come into functioning.

Blockchain

Blockchain technology is invented by Stuart Haber and W. Scott in 1991. Blockchain is a chain of recorded transactions, a digital public ledger maintained widely by the investors or developers who verify these transactions. Blockchain lets cryptocurrency trading be transparent and accessible to everyone. These transactions can be tracked by anyone, and the entries are irreversible. It is hard to change the data or alter the transactions in a blockchain.

Blockchain technology is also used in the NFT ecosystem. The blockchain process includes a new transaction and a network of computers that solve the equations to confirm the transaction. Once confirmed, it is permanently added to the block. These blocks consist of a cluster of transactions that are hard to break and alter.

A blockchain developer is one of the key persons who create the protocol and develops smart contracts, they ensure that the data entered is unaltered. Depending on the skills, a typical blockchain developer earns about 45,00,000 INR per annum.

Mining

The process of creating is called Mining. It pushes new coins into circulation for investors to buy and hold. It is also the validating of information in the blockchain. Bitcoin miners get thousands of dollars for mining a block. Bitcoin mining can happen in 10 minutes based on the system and the right software, which costs more than the bitcoin itself.

But it takes around 30 days to mine one bitcoin for a basic design with remarkable GPU and exceptional control. If you mine a block of Bitcoin, you get yourself a 6.25BTC as a reward which equals $2,40,978.12 (1,80,12,488.30 INR) in your wallet.

Is the Process of Mining hard?

There should be some complexity for the value it holds; else, everyone would earn BTC for free. Miners verify the legitimacy of transactions. You need to find a solution for a hard hashing puzzle to successfully mine a block. It surely damages your computer's GPU and hardware due to the strain it puts on the system.

Bitcoin Mining costs huge amounts of electricity and produces a lot of heat. The process is just a guess of the target hash, the final number. This is very complex; that is the reason for the existence of mining pools. These pools are like a group of miners working on a block to crack and find that target hash. They share profits based on their contributions in finding the solution.

Who holds most of the Bitcoin?

It is Nakamoto (might be any individual or entity) holds over 10,00,000 BTC.

How many BTC exist?, and How Many BTC Come Out Every Day?
There exist 18,945,250 BTC in total (Mined). On average, 144 blocks are mined every day, so 900 BTC come out.

Is Bitcoin Impossible to Steal?

If that's your question, the answer is "NO." Someone stole over 850,000 BTC in the Mt.Gox Hack in the year 2014. In another major hack, over 120,000 BTC were stolen in the year 2016. It is not totally impossible to steal or hack the coins from the system.

Current prices of Some Popular Coins

  • Value of 1 Bitcoin (BTC) - 2886394.65 INR
  • Value of 1 Ethereum (ETH) - 207819.94 INR

Scams

Different scams might happen in the area of cryptocurrencies. Some of them are:
  1. Crypto-jacking
    Cryptojacking is where a hacker sends a malicious link to a person and clicks it. It leads to installing crypto mining software without the user's knowledge, making the hacker create cryptocurrency from the user's computer. It uses the computing power of the user's computer to mine cryptocurrencies like Bitcoin.
     
  2. Sale Fraud
    Some dealers in cryptocurrencies commit fraud and steal crypto from the seller.
     
  3. Fake websites
    These websites look legitimate and trustable but turn out to be fake the next day. Investors should verify the track record of the website before investing. Many websites work on the same name and steal the currencies you hold.
Now, let's dive into cryptography.

Cryptography

Cryptography is derived from Greek kryptos, meaning "hidden writing ."The word "crypto" means hidden, and "graphy" means writing. Cryptography is a method used to protect information from everyone so that it can only be accessed and processed by the persons intended. Cryptography ensures data privacy. There are some essential functions and objectives of Cryptography. They are:
  1. Integrity
  2. Confidentiality
  3. Authentication

Integrity
Integrity means being as a whole. The information shouldn't be modified in storage. It shouldn't be altered in any phase during transfer between the sender and receiver. The goal of Cryptography is to achieve the integrity of data in the system.

Confidentiality
Confidentiality is keeping the information private, only between the sender and the receiver. The parties should only access the information, i.e., sender and receiver. No third party should access, view, or alter the data.

Authentication
The information should be authenticated. There can be two types of services in authentication, where there is no alteration of data, and the identities of the sender and receiver are confirmed before accessing the data.

To understand Cryptography, you need to know the types and their work. Cryptography is mainly classified into two types. They are
  1. Symmetric Key Cryptography
  2. Asymmetric Key Cryptography
We need to first understand the terms "Encryption" and "Cipher" to understand the basics of key cryptography.

Encryption is a process of encoding a plain text which is understandable for everyone into a ciphertext that can only be decrypted by the concerned receiver. Encryption keeps the info safe from other third parties. It prevents them from accessing and reading the text. Decryption is the decrypting of cipher text back to plain text that the receiver understands.

Today most sites use encryption services to protect their data. The Indian Government mentioned the encryptions in the draft of the National Encryption Policy, 2015, which was later withdrawn. It was withdrawn due to the uncertainty in the provisions. There was an updated version of the policy, which was proposed in 2017. The encryption debate is still going on in India.

What is a cipher? And what are the types of ciphers used in Cryptography?.
Cipher is writing something in a secret language known only to the intended people. It is used in encryption to change the plain text to ciphertext. There are several ciphers like transposition cipher, Substitution cipher, and block cipher.

Transposition ciphers are used to change the plain text to a serial number. The letters in the text have changed arrangements, making them difficult to understand. For example, the serial number of a 5 letter word can be 1,2,3,4,5 in plain text. Still, in transposition ciphertext, it can be changed to 2,4,5,1,3.

Substitution Ciphers change the plain text into a randomized letter combination in the ciphertext. It contains a fixed system of multiple units. The keyword should be known; for example, if the keyword mentioned is "LOL," the receiver can only use that keyword to decrypt the ciphertext back into plain text.

Block Ciphers work on fixed-length blocks of bits like 128, 256-bit encryptions. I'm sure you must have heard about bit encryptions. These are AES, Advanced Encryption Standard, or the original name "Rijndael ."For example, AES-256 bit encryption.

It uses an algorithm to encrypt a block of data rather than encrypting them one by one, as in substitution and transposition ciphers. It is hard to break the encryption blocks as it contains numerous combinations.

Did you know that Whatsapp uses 256-bit encryption to secure user data?
Symmetric Key cryptography
Symmetric Key Cryptography is asymmetric encryption. The system generates a leveraged secret key for both encryption and decryption functions. The same key is used to encrypt and decrypt the text. Symmetric Key Cryptography is then divided into classic and modern cryptographies.

Asymmetric Key Cryptography
Asymmetric Key Cryptography is encryption in which the system generates a secret key for encryption and a separate private key for decryption. There is an algorithm called RSA, which is widely used. In RSA, the sender holds a public key, which everyone may not know. But, the receiver maintains a private key that is only known to him. The algorithm has bit key sizes like 512, 1024,2048.

Hash Functions
No keys are used in the hash function. A plain text gets a fixed hash value. Because it is almost impossible to crack a hash, it is used to create passwords by websites.

Conclusion
Cryptocurrencies are virtual currencies available widely in the ecosystem. Though there are 8,000 cryptocurrencies in existence, Cryptography and cryptocurrency are still emerging in their abilities. It is important to understand the very essence of cryptocurrencies. Cryptography, the technique used to secure information in a better way, in itself is a never-ending process. Investors' privacy must be the topmost priority and shouldn't be ignored.

Reference:
  1. http://www.investopedia.com
  2. www.kaspersky.com
  3. www.statista.com
  4. http://www.buybitcoinworldwide.com
  5. carnegieindia.org
  6. sflc.in

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