Cryptography

Overview #

Communication is the root of user severignity. Communication is how we solve problems, establish cooperation, and enjoy our precious lives. Cryptography is a set of mathematical techniques that allows one to scramble communication in such a way that only that person can specify how to unscramble the communication.

Use of cryptographic technologies became ubiquitous in the Web2 phase, and now undergirds the internet. Using HTTPS, all internet traffic is encrypted, so only those authorized may view it. This form of encryption requires the use of centralized certificate providers.

In Web3, cryptography is moving away from centralized providers to self-issuance.

Cryptography gives us many useful tools:

• Encryption - concealing messages
• Authentication - proving that you know something and are therefore authorized
• Verification - verifying that a message was not altered
• Reputation - proof that something occurred at a given time

History #

1930-40s

• Decryption of German encryption plays key role in WW1
• Alan Turing advances cryptography in computing

Mid-Century

• Cryptography is primarily used for defense purposes

1977

• RSA public key encryption invented. This is the asymmetric cryptography that allows a user to share a public key with the world, which can be used to encrypt data that only the holder of the private key can read. It is slow, so it is only used to start sessions, but when combined with symmetric encryption, which is invented later, allows for high-performance and trustless encryption sessions.

1989

• Berners-Lee and Robert Cailliau built the prototype system which became the World Wide Web at CERN.

1994

• Bruce Schneier’s Applied Cryptography is published. This is the seminal work on cryptography.

• SSL is released by Netscape. This is the first scheme used to encrypt HTTP requests, which is the protocol by which every web page is retrieved.

1995

• NSA publishes the SHA1 hash algorithm as part of its Digital Signature Standard. Hashing algorithms are a key component in the efficient verification of data.

1997

• Hashcash first proposed. This is the precursor to Bitcoin’s proof-of-work.

2000

• U.S. Government announce restrictions on export of cryptography are relaxed (although not removed). This allows many US companies to stop the long running process of having to create US and international copies of their software.

2001

• Belgian Rijndael algorithm selected as the U.S. Advanced Encryption Standard (AES) after a five-year public search process by National Institute of Standards and Technology (NIST). This is the primary symmetric encryption scheme used today.

2001-2005

• Many cryptographic algorithms shown to have weaknesses, like WEP (wifi passwords), SHA-1 and MD5 hashes, prompts moving to more advanced variants like WPA and SHA-2.

2008

• Bitcoin whitepaper is published anonymously by Satoshi Nakamoto as an “electronic payment system based on cryptographic proof instead of trust.”

2014

• Ethereum whitepaper is published

2017

• Filecoin whitepaper is published.

Leading to digital currencies #

Armed with cryptography, we can now look at ways to use it to accomplish our goals of increasing user sovereignty. In decentralized networks, users will need to run infrastructure (like servers), which cost money. Currency is the universal tool used to finance work. National currencies fuel Web2, but they have severe limitations. They are slow and encumbered by rules that restricts use across borders.

A currency is just a ledger, an accounting system that keeps track of who has how much, and allows parties to exchange with each other. In the case of National currencies, the central banks maintain the root ledgers and authorize branch banks to maintain individual records for their own sets of customers. The value of a currency depends on how useful it is and how much trust the users have in the “fairness” of the currency authorities. An authority that arbitrarily adds units to some accounts and not others will begin to lose the trust of its users.

There were many attempts at creating non-national digital currencies, but these were all met with political resistance and were shut down. eCash is widely considered the first version of internet money followed by B-money, Bitgold, and Hashcash. All were influential in what we know to be cryptocurrency today. Their weakness was their centralization – shutting down the central offices would effectively take down the entire network.

In the 90s a small group of hackers who called themselves Cypherpunks were tired of the government’s power and ability to obstruct people’s privacy as a means of oppression. The Cypherpunks believed that cryptography would be the tool to maintain sovereignty of and freedom on the internet.

“We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy out of their beneficence. […] We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place.” (A Cypherpunk’s Manifesto)

A decentralized digital currency must not have a central authority that could be shut down. But without a central authority, the problem arises of how to arbitrate and create a fair system that both incentivizes good behavior and prevents being gamed by hostile actors.

In 2009, a pseudonymous group of developers called Satoshi Nakamoto released Bitcoin. This proved to be the first digital currency network that was decentralized enough to be able to flourish across the globe. It brought together several pre-existing cryptography techniques. The novel insight was to incentivize useful work in the network by granting rewards denominated in bitcoins to those who facilitate transaction transmission and storage.