As Cryptocurrency and blockchain technologies come close to being one of the largest revolutions of the world of the future, many wonder what these technologies truly are. As such, a in-depth, simplified explanation is required.
To begin, imagine you had a ledger; one which was public to the people, where you wrote down transactions; starting with, say, four people. Let’s say these four people are Bobby, Alice, Charlie, and Steve. Let’s also say that Alice gives Charlie 10 dollars and writes it down on the ledger. This is worth nothing until they settle in real money at the end of the month, at least for now. The first issue that arises is, given that anybody can write on the ledger, people could make fraudulent self-payments and just pretend they were valid payments from other people. To prevent them from doing this, we must make use of a cryptographic technology: one which cannot be reverse engineered and cannot be copied. Thus, we use a piece of technology called a digital signature; something that generates a thing called a public key, and a thing called a private key. Anybody can see your public key, however, as the name suggests, private keys are something to keep to yourself. Your signature is generated by an irreversible function which outputs a signature based on the original message; that is, the transaction; and the private key itself.
Of course, then, the computer must verify that the signature was generated by your private key and your private key alone. The way that you can verify that the public key you used to verify that the signature was generated by your private key, is that your computer uses a very convoluted and irreversible function; one which I will not specify on as only the mathematicians in the room would fully understand; to generate a True or False statement: Whether or not this key came from your private key. If the original message was changed at all; e.g. the transaction; the signature would be completely different.
We’re going to get into the more advanced aspects of this system in the future, but there are many questions left unanswered as of now; questions that will be answered in our Blockchain Basics series.