The Bitcoin protocol is based upon two key concepts — a public, pseudonymous ledger where transactions occur, and a blockchain, a linked-list data structure which is secured by something called elliptic curve cryptography. So what is it? Let’s take a short dive and discover it together.
In order for a human agent to make transactions on the Bitcoin network, this requires two parties, each of whom have their own unique signatures — these take the form of two pairs of keys, one related to the other. There’s the public key, which is the address which people point their transactions to. Kind of like if you wanted to send someone money on PayPal, you would need their unique email address. Secondly, there is another key, called a private key, which is not shared publicly with anyone except the owner of that account, often called a “wallet”. In Bitcoin, the public address is actually based off of the private key, so that the network can verify that the address is actually associated with the account receiving funds. However, this is not a two-way process. While one can create the public key from the private key, it is nearly impossible with current computing technology to do the reverse. While technically possible given infinite computing power — a brute force approach to generating the private key of any specific public address would take in the range of billions of years. Therefore, this cryptographic method is mathematically secure.
Bitcoin and cryptocurrencies are all about only putting your trust in yourself. With normal currencies, we trust the governments and banks issuing them that 1) the tender has monetary value and 2) that it can be transacted with. While this trust-based infrastructure works to an extent, the economic collapse of various nations shows that this only goes so far. In recent years, one need only look to Venezuela, a country rules by a dictatorial regime which has irresponsibly cause insane amounts of inflation in their national currency, the Bolivar. So much so that rather than counting notes when exchanging goods and services, bundles of the paper notes are weighed. Think about that. This has crippled the country’s commerce and trade, leading many to flee, or — as we have seen recently — to revolt.
So, in an attempt to balance the faith-based evaluation of any currency (see, Bitcoin’s constantly-fluctuating price) while removing trust from the equation, Bitcoin uses a mathematically secure method of securing everyone’s funds on the network from bad actors. The only way to get around this model is to attack the network itself, Bitcoin’s sole human vector. While theoretically possible, such 51% attacks as they are known would require a majority control, or perhaps a coordinated collusion, in order to rewrite transaction history. Given the decentralized nature of the network, this is far from likely. Still, it is possible. Cryptocurrencies such as Verge have had this happen before. However, the larger the adoption of a certain currency, the harder this becomes. Especially as mining rewards for the older currencies go down exponentially over time.So how does elliptic curve cryptography work? In essence, it’s all in the math. En elliptic curve is simply a set of points on an imaginary grid that map out the solutions to a certain equation. These equations tend to look something like:y2 = x3 + ax + b
Red: an elliptic curve | Green and Blue: Operations [Credit: “Mastering Bitcoin 2nd Edition”]
This unique structure allows operations to be done to the curve, with the inputs and outputs being both distinct and verifiable. Some of the kinds of operations that can be done to this will result in a unique string of numbers, displayed in Hexadecimal format. This applies both to the secure generation of random keys, as well as the translation from a private key to a public key.For more information on the details of this method: https://crypto.stackexchange.com/questions/48657/how-does-ecc-go-from-decimals-to-integers
All in all, this cryptographic security is what maintains the integrity of the Bitcoin blockchain from bad actors. As a “Proof of Work” protocol, these cryptographic puzzles — which rely on the same security — require physical hardware in order to perform. In the early days of Bitcoin, people were able t use the CPUs of their laptops and home computers. But as the difficulty has increased, more powerful techniques — measured in “hash power” were required. A hash is simply the name for the mathematical transformation from one piece of data to another. Kind of like when you take “Hello, Mom” and type that into an online website to turn that into binary code, except far more detailed, and far more secure.As for whether the network itself might one day fall victim to a malicious attack, only time will tell. But it will certain require far more computing power than is currently available on the network. And with Bitcoin’s open source nature, the community could simply agree to fork off of the blockchain from a certain time and proceed from there. We saw this happen with Ethereum early in its history, an event known as the DAO hack.
More on that here: https://www.cryptocompare.com/coins/guides/the-dao-the-hack-the-soft-fork-and-the-hard-fork/
The only way one can fully protect yourself is to only trust yourself, and to promote a healthy, secure network on which to transact your goods. The future is what you make it. And the future is here to stay.