Digital signatures are used extensively in Bitcoin and blockchains for creating valid transactions ‘signing’ transaction messages to move coins from your account to someone else’s.

What are digital signatures, in a cryptographic sense? Well, we can afford to be a bit pedantic here. Digital signatures are a subset of electronic signatures, which can take several forms.

Bitcoin and Digital Signatures:

Ensuring Secure Transactions through Digital Signatures

Electronic signature

One form of electronic signature is as simple typing your name into a box:

Another form of electronic signature is a picture that looks like a wet-ink signature, but inserted into a document:

So, what does a digital signature look like? I created a small message containing the text ‘Here is a message I want to sign’. and I signed it using the (private) PGP key I generated earlier. Here is what the signature looks like:

So that is a digital signature. Looks like gibberish. So, what is so special about it? What does it prove?

A digital signature is created by taking the message you want to sign and applying a mathematical formula with your private key. Anyone who knows your public key can mathematically verify that this signature was indeed, created by the holder of the associated private key (but without knowing the private key itself).

So, anyone can independently validate that this piece of data was signed by the private key holder of this public key.

In essence:

wet-ink signature problems

How is this better than a wet-ink-on-paper signature? The problem with a wet-ink signature is that it is independent of the data that is being signed, and this creates two problems:

1. There is no way of knowing if a document has been tampered after your signature is applied to the bottom.

2. Your signature can easily be copied and re-used with other documents, without your knowledge.

Your wet-ink-on-paper signature is your signature and does not change based on the item being signed: when you sign a cheque, a letter, or a document, the whole point is that your signature looks the same. This is easy for other people to copy! This is terrible security!

In contrast, a digital signature is only valid for that exact piece of data, and so, it cannot be copied and pasted underneath another piece of data, nor can someone else re-use it for their own purposes. Any tampering with the message will result in the signature being invalidated. The digital signature is a one-time ‘proof’ that the person with the private key really did approve that exact message. No one else in the world can create that digital signature except you unless they have your private key.

The mathematical process of ‘signing’

Now, just to explain one further step, the mathematical process of ‘signing’ a message with a private key is an encryption process.

Remember that you encrypt data with a public key, and decrypt it with a private key? With some schemes you can also do it the other way around: you can encrypt data with a private key and decrypt it with a public key.

So, the validation process is taking the digital signature and decrypting it with the well-known public key, and seeing that the decrypted signature matches the message being signed.

But what if the message being signed is big, like, say, gigabytes of data? Well, you do not want a really long digital signature, as that would be inefficient.

So, in most signing schemes, it is the hash (fingerprint) of the message that is signed with the private key to produce a digital signature which is small, irrespective of the size of the data being signed.

Microsoft’s TechNet website

There is a good summary on Microsoft’s TechNet website:

So digital signatures can be used to authenticate a transaction or message, as well as to ensure data integrity of the message. Also, unless a private key has been copied; it is impossible afterwards to say ‘it wasn’t me’—this property is called ‘non-repudiation’ and provides comfort for both parties to a transaction.

Digital signatures are used in blockchain transactions because they prove account ownership, and the validity of a digital signature can be proven mathematically and offline, without asking any other party. Compare this to traditional banking: when you instruct your bank to make a payment, you first authenticate yourself by logging in to the bank’s website or showing your ID to a bank teller in person. If the bank believes that you are the account holder, then the bank executes your instruction on your behalf.

In a blockchain system, where there is deliberately no organization to provide or maintain accounts for you, your digital signatures are the critical piece of evidence that entitle you to make signatures are the critical piece of evidence that entitle you to make transactions.

WHY ALICE AND BOB?

In cryptography, it always seems to be Alice and Bob. Why? They are characters first used by Ron Rivest, Adi Shamir, and Leonard Adleman in their 1978 paper ‘A method for obtaining digital signatures and public key cryptosystems’ instead of a drier ‘A’ and ‘B’. Since then, people use these characters as a nod to the inventors.

But wait, there is more… Wikipedia has a list of commonly used characters, and here are a few I am fond of:

• Craig the password cracker
• Eve the eavesdropper
• Grace the government (generally characterized as anti-cryptography)
• Mallory the malicious man-in-the-middle
• Sybil the attacker who uses a lot of pseudonyms to overwhelm Alice and Bob

So, there you go, that is why it is always Alice and Bob.

The Top 10 Benefits of Using Digital Signatures in Bitcoin Transactions

Cryptocurrencies, particularly Bitcoin, have emerged as a game-changer in the world of finance and economics. Bitcoin’s decentralized and peer-to-peer network, coupled with its blockchain technology, has revolutionized how people conduct financial transactions. Digital signatures, one of the key features of Bitcoin, have been instrumental in enabling secure and private transactions. However, the benefits of Bitcoin extend far beyond its digital signatures.

We will explore the top 10 benefits of Bitcoin and how they are transforming the world of finance. From fast and cheap cross-border payments to low transaction fees and transparency, Bitcoin is bringing a plethora of advantages to individuals and businesses alike. So, let’s dive in and explore the unique benefits of Bitcoin that make it a promising asset for the future, here are 10 potential benefits of using digital signatures in Bitcoin transactions:

Top 10 benefits of Digital Signatures

1. Increased security: Digital signatures help ensure that only the owner of a particular Bitcoin wallet can authorize a transaction, reducing the risk of fraud and unauthorized access.

2. Enhanced privacy: Digital signatures help to protect the privacy of Bitcoin users by preventing the need to reveal personal identifying information during transactions.

3. Improved efficiency: Digital signatures allow Bitcoin transactions to be verified quickly and easily, reducing the time and resources required for manual verification.

4. Reduced costs: By eliminating the need for intermediaries such as banks or other financial institutions to verify transactions, digital signatures can help to reduce transaction costs.

5. Global accessibility: Digital signatures allow Bitcoin transactions to be conducted across borders and time zones, making it easy to send and receive payments from anywhere in the world.

6. Transparency: Digital signatures enable all parties involved in a Bitcoin transaction to see the details of the transaction, including the amount transferred and the parties involved.

7. Immutable records: Digital signatures help to ensure that Bitcoin transaction records are permanent and cannot be altered or deleted, providing a permanent and transparent record of all transactions.

8. Simplified auditing: With digital signatures, Bitcoin transactions can be easily audited and verified, simplifying compliance with regulatory requirements.

9. Increased trust: Digital signatures provide a high level of security and transparency, helping to build trust between parties involved in Bitcoin transactions.

10. Potential for new applications: The use of digital signatures in Bitcoin transactions has the potential to open up new applications and use cases for blockchain technology.