Encryption in cryptocurrencies is a complete protocol for achieving financial privacy on a public ledger. It allows digital currency users to send and receive bitcoins without needing to reveal their identity or other private information.
Let’s take bitcoin as an example. Encryption is a very important part of the protocol because it enables the following:
- Users can have complete control over their own money
- Transaction data is anonymized
- All transactions are irreversible
- No central authority or bank to get hacked or go bankrupt
One of the most important concepts of bitcoin is that all transactions are public and can be seen by everyone. Although it might seem contradictory with item two from the list, this means that anyone can see the transactions happening and they also know who is sending and receiving bitcoins.
Encryption in bitcoin enables two amazing properties: privacy and decentralization.
One way to protect this information would be to encrypt it with a public key so only the owner of the private key can decode it. The public key is called a bitcoin address and anyone can easily share their bitcoin address with others.