Crypto- (Greek, Kruptós): Concealed, private, hidden, secret

I. Cryptography

Using codes and cyphers to protect secrets

• Code: A system of rules to convert secret messages into shorter, secure forms that can be broadcast over an insecure channel or stored in a medium
• Cypher: An algorithm that encrypts or decrypts a message.

Cryptanalysis

Breaking codes and cyphers to expose secrets

• The most famous example is Alan Turing breaking Germany’s codes in the early 1940s with the Enigma machine.
• Today we have codes that are truly unbreakable, and a modern equivalent to the Enigma machine for them could not physically be constructed today. This was achieved with two main inventions:

1. Public encryption standards
2. Public-key cryptography

Classic Cryptography

Encryption with calculations on pen and paper, or simple mechanical aids. This culminated with the Enigma rotor machines and the Bombe.

Modern Cryptography

After the war encryption with electronic, programmable computers created increasingly complex codes that cost increasingly more money to decrypt. This gave increasingly more power to agents that utilized strong encryption techniques.

II. Encryption

A message that authorized parties can access and unauthorized parties cannot. It will not prevent interference of the transfer of the message; it simply denies the content to any interceptor.

• A message is encrypted with an algorithm (cyphertext) that can only be read if decrypted with an encryption key.
• The cyphertext transforms the message into "digital gibberish," and is returned to its original form by the encryption key.

In principle it’s possible to decrypt the message without the key.

• There will be a finite number of possible answers which a computer could try to brute-force guess, one by one, until eventually arriving at the correct answer.
• But a well-designed encryption scheme has so many possible key values that guessing every possible answer with a computer would take millions of years, even with billions of calculations per second.
• This results in codes that are for all practical purposes unbreakable when implemented correctly (until quantum computers come around and ruin everything).

Caesar’s cypher was a substitution cypher used by Julius Caesar to protect his military correspondence.

• Each letter in the message is substituted with the letter three spaces to the left in the alphabet (E turns into a B).
• In this case the key is the instruction to shift to the right by three.

III. Key exchange

Two keys that are mathematically connected. This allows two individuals to communicate securely through an insecure channel as long as they are both in possession of their keys.

1. Alice broadcasts an encrypted message to Bob.
2. It is broadcast over a channel that an adversary (or adversaries) can listen to without Alice or Bob’s control.
3. The adversary only hears gibberish, and the gibberish can be transformed backed into the message by Bob with an algorithm (cyphertext) that only Alice and Bob have access to.

This allows us to construct a (very, very) basic description of the mechanism of bitcoin.

1. Bitcoin is the encrypted message that Alice wants to send to Bob.
2. We need to broadcast bitcoin through the Internet (the least secure channel in human history).
3. A bitcoin wallet is the cyphertext that allows Bob to receive the money and verify it while also keeping the money secure from all adversaries.

However we must be careful not to take this simplification too literally.

• There are many significantly more complicated cryptographic innovations that lead to Bitcoin's creation in its current form (this does not include any description of a shared ledger, for example).
• Nonetheless, this metaphor still gives us a mental model for conceptualizing the process of buying, storing, and transferring bitcoins between two individuals.

Cryptographers framed the issue of secrecy and how to achieve it through two competing models.

• Perfect secrecy: Systems made to protect against attackers with infinite resources to decode a message.
• Practical secrecy: Systems made to protect against attackers with finite resources with which to decode a message

Practical secrecy was an essential consideration when our computers were working with kilobytes of data. But to make a cypher on the World Wide Web unbreakable it must have perfect secrecy, since it must be secure from everyone on the planet.

IV. Data Encryption Standard

In 1975 a research group at IBM was invited by the National Bureau of Standards to publish the DES in the U.S. Federal Register.

• The Bureau hoped IBM could develop secure electronic communication facilities for banks and other large financial organizations.
• In 1977 the NSA provided some notes for the standard behind the scenes and a revised version of the same paper became the first publicly accessible government grade cypher.
• The release of its specification created an explosion of public and academic interest in cryptography.

In the 1990s commercial transactions over the Internet needed a new, robust, and widespread standard for encryption.

• In the late 1990s and early 2000s public-key algorithms became a more common approach.
• The creation of a new protocol known as the Secure Socket Layer (SSL) allowed Internet users to purchase goods, pay bills, and conduct traditional banking transactions.

The aging DES was officially replaced by the Advanced Encryption Standard (AES) in 2001, which is still in use today.

• AES has been incorporated into many national and organizational standards, but there is a problem.
• 56-bit key size is insufficient to guard against brute force attacks (the Electronic Frontier Foundation cracked the encryption in 1997 in 56 hours).
• Using an unaltered DES encryption is insecure for use in new designs. In fact, all messages sent since 1976 using DES are vulnerable to decryption.

V. Symmetric key algorithms

The DES and other encryption techniques at the time were symmetric-key algorithms, meaning the same key is used by both the sender and the recipient. They must both keep the key secret.

• Like the Enigma machine, the key for a code is the codebook which must be distributed and kept secret.
• The key had to be exchanged between Alice and Bob through a secure channel prior to any interaction through an unsecure channel.

This becomes unmanageable in the real world with large groups of people who are unable to communicate over a secure channel.

• A separate key was needed for every pair of users wishing to communicate securely, known as the key exchange problem.
• In 1976 Whitfield Diffie and Martin Hellman implemented a new method for distributing cryptographic keys that was originally conceived by Ralph Merkel, known as the Diffie–Hellman key exchange.

VI. Asymmetric key algorithms

A pair of mathematically related keys, each of which decrypts the encryption performed by the other.

• Some (though not all) of these algorithms have the characteristic that one of the paired keys can't be deduced from the other through any known method except for simple trial and error.
• An algorithm of this kind is known as a public key or asymmetric key.
• Using such an algorithm, only one key pair is needed per user.
• By designating one key as private (always secret) and the other as public (often widely available), no secure channel is needed for key exchange.

Asymmetric keys with a sufficient key size enable 100% secure communication, but only in theory.

• The catch is it only works if the private key stays secret.
• If Alice and Bob memorize their keys and never share them with a single soul they will be able to communicate securely for the rest of their lives.
• The public key can even be widely available, yet they will only ever need their individual private keys (again, only until Peter Shor jumps out and cryptopunches the factorization right out of them).

Alice and Bob can communicate securely over an insecure channel when both of them know each other’s private keys as well as the public key.

• Imagine Alice and Bob each have a pair of keys they've been using for years with many other users.
• At the start of their message, they exchange public keys that are unencrypted over an insecure line.
• Alice encrypts a message with their private key, and again with Bob's public key.
• The twice-encrypted message is then sent as a digital file to Bob.
• Bob receives the file and first decrypts it with his private key, and then again with Alice’s public key.

If this sequence results in a coherent message Bob assumes the message came from Alice (or someone in possession of Alice’s private key). Anyone eavesdropping on the channel will need Bob's private key in order to understand the message.

VII. Asymmetric algorithms get their effectiveness from one-way functions.

• This is a math problem that is very simple to execute one way, but requires vast amounts of computational power to do in reverse.
• The archetypal one-way function (RSA, invented in 1977) multiples two large prime numbers and spits out a new number.

A computer could quickly and easily multiple 2^77232917 and 2^74207281. But if you were to take the resulting answer with its 23,249,425 digits, and fed it into a different computer asking it to figure out what those first two prime numbers were, it would have to guess every possible combination of primes up to that number.

• Computers perform operations very, very quickly. But the number of possible answers is so unbelievably large it would take millions of years for computers to find the right answer.
• It's easy to multiply two large primes and check for the correct answer. But it's very difficult to find the factors of the product of two large primes, and with large enough numbers it is for all practical purposes impossible.
• Asymmetric algorithms require very long keys to be to reach the same level of security provided by relatively shorter symmetric keys.
• The need to both generate the key pairs, and perform the encryption/decryption operations make asymmetric algorithms computationally expensive.
• Since symmetric algorithms can often use any sequence of (random, or at least unpredictable) bits as a key, a disposable session key can be quickly generated for short-term use.

A hash function encodes information quickly using typical algorithms, and can be used reduce large bits of data into data of a fixed size.

• A cryptographic hash function transforms a large string of text (key) into a different, smaller string of text (hash value).
• This creates a "digital fingerprint" of the message, and that specific hash value must be used to identify that specific message.
• This allows hash functions to verify digital signatures.

Much like a hand-written signature, these signatures are verified by assigning their exact hash code to a person.

• Modern operating systems and many web applications store passwords this way.
• A user on the system creates a password that is first hashed by using a key and then stored in a password file (for the love of god salt your hashes).
• This allows all of us to store various encrypted messages.

VIII. For the first time individuals had access to public, standardized cryptographic protocols that previously only governments could attain. This has already lead to profound changes in the organization of information in our global society.

• Citizens could use a communication system that was not easily breakable, even by heavily funded government agencies.
• Phil Zimmermann distributed a freeware version of Pretty Good Privacy (PGP), a very high quality crypto system in 1991 that has helped set the standard for open source security software like OpenPGP.
• He distributed a freeware version of PGP when he felt threatened by legislation then under consideration by the US Government that would require backdoors to be included in all cryptographic products developed within the US.
• His system was released worldwide shortly after he released it in the US, and that began a long criminal investigation of him by the US Government Justice Department for the alleged violation of export restrictions.
• The Justice Department eventually dropped its case against Zimmermann, and the freeware distribution of PGP has continued around the world.

PGP and similar cryptographic systems remain unbreakable to this day, leaving hackers to exploit other weaknesses including:

• Poor implementation
• Human error
• Insistence on symmetric key systems (so as to make sure the government has a copy)
• An overwhelming preference for convenience over security

These reoccurring patterns have lead to widespread systemic failures including:

• The first Wi-Fi encryption scheme WEP
• Content Scrambling System used for encrypting and controlling DVD use
• A5/1 and A5/2 cyphers used in GSM cell phones
• CRYPTO1 cypher used in the widely deployed MIFARE Classic smart cards

IX. Cryptoanarchy

Cryptographic software used by citizens wishing to evade political prosecution and censorship, while also enabling secure, anonymous transactions over computer networks to attain greater privacy and political freedom.

• In 1992 a group of like minded computer scientists started exchanging emails about widely available cryptographic technology and it’s potential influence on society.
• They believed the security these tools facilitated would result in greater privacy and political freedom for individuals.
• Readers of the mailing list would be referred to as cypherpunks.

A specter is haunting the modern world, the specter of crypto anarchy. Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Interactions over networks will be untraceable, via extensive rerouting of encrypted packets and tamper-proof boxes which implement cryptographic protocols with nearly perfect assurance against any tampering.

These developments will alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation. The State will of course try to slow or halt the spread of this technology, citing national security concerns, use of the technology by drug dealers and tax evaders, and fears of societal disintegration.

Many of these concerns will be valid; crypto anarchy will allow national secrets to be traded freely and will allow illicit and stolen materials to be traded. But this will not halt the spread of crypto anarchy. Just as the technology of print altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions.

-Tim May, The Crypto Anarchist Manifesto (1992)

Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn't want the whole world to know, but a secret matter is something one doesn't want anybody to know. Privacy is the power to selectively reveal oneself to the world.

-Eric Hughes, A Cypherpunk's Manifesto (1993)

In a 1994 cypherpunks email titled “The Cyphernomicon,” Tim May summarized what he saw as “The Basic Issues” discussed over the first two years of the mailing list.

• These issues centered on the inherent tension in a free society between the right to privacy and the need to uphold the rule of law.
• He argued that cryptographic technology would reify these issues in a way never seen before.

The Great Divide: Privacy vs. compliance with laws

• Free speech and privacy, even if means some criminals cannot be caught (a stand the U.S. Constitution was strongly in favor of, at one time)
• A man's home is his castle (the essence of the Magna Carta systems)
• Rights of the individual are secure from random searches and other invasive tactics to catch criminals, regulate behavior, and control the population
• Self-protection vs. protection by law and police
• We are already past the point of no return.
• Strong cryptography as building material for a new age
• Transnationalism and increased degrees of freedom leads to borders becoming largely symbolic as governments lose control over movements and communications of citizens.

Cypherpunk

An activist advocating use of strong cryptography and privacy-enhancing technologies as an enabler of greater social cooperation and political change.

• The mailing list's discussion of cryptography as an explicitly political tool would have a powerful influence on computer scientists and political libertarians alike.
• One of members of the mailing list would go on to create WikiLeaks. Another would create Bitcoin.

Cryptocurrency/Cryptoasset

Digital asset designed to work as a medium of exchange by using cryptography to verify transactions, control the creation of additional units, and facilitate the transfer of assets without the oversight of a centralized authority.

X. Cryptoeconomics

Cryptographic algorithms, network protocols, and game theoretic strategies combined to create a secure, decentralized market with no central authority.

• A set of protocols that govern production, distribution, and consumption of goods and services in a secure, decentralized digital market.
• Every user of the currency benefits from mainstream adoption, incentivizing positive human cooperation and synergistic value creation through network effects.
• This engenders a stronger sense of autonomy and independence throughout the users' lives and society.
• Game theory entails the study of economic interactions between agents in various adversarial and cooperative environments.

In 2011 Silk Road became the world’s first significant cryptomarket.

• It provided an anonymous (sort-of) and secure (whoops) platform to purchase illegal drugs and other contraband in exchange for bitcoins.
• This simultaneously confirmed the best and worst predictions of the possible effects cryptocurrency would have on the world.

Epilogue

I have yet to meet a person who understood bitcoin the first time it was explained to them. Only the most dedicated of autodidacts seem to grok bitcoin. It took me years of wrestling with these terms and ideas before they started to coalesce in my head into a coherent and usable body of knowledge.

With an understanding of the fundamental issues at the heart of cryptography's progression from hand computed cyphers into a global decentralized cryptoeconomy we have all the knowledge necessary to appreciate the true utility and innovation of the blockchain.