Cryptography has been used for many years within the financial industry, mainly to secure e-payments and their associated accessories and networks. However, from the early 1980’s various research papers were published about the subject of digital currencies. An overriding theme was the use of cryptography and other security primitives such as hashing and digital signatures to provide proof of ownership in a distributed system and anonymity for those taking part in transactions. A paper published in 2008 using the pseudonym Satoshi Nakamoto promised both and Bitcoin has now become the leader in digital currencies.
Bitcoin is a digital currency which, through a process of cryptography and hash functions, allows participants to trade and buy goods anonymously. Participants have in their possession a digital private key which is used to transfer ownership of bitcoins and allow trading. Instead of a central agency recording ownership, crypto-currencies rely on a distributed ledger stored on the computer of multiple users of the blockchain.
Due to the ledger being decentralised, agreement on who owns bitcoins is reached by a consensus process. All participants have a local copy of the ledger on their computers or whichever device is connected to the bitcoin network. All those with computing power are encouraged to verify new transactions which also verifies who owns the bitcoins and prevent double spending (the illegal process of sending the same coin to two or more different entities).
cryptographic primitives such as hashing,