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1970s Cryptography Achievements Contribute to Bitcoin Progress

01.03.2016

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Newcomers to the world of cryptocurrencies face a challenge in terms of Bitcoin-addresses due to unique structure and lack of analogues of the latter. Surface similarity with e-mail addresses and possibility to create unlimited number of free wallets deceive many people. Allocation of Bitcoin–addresses is performed at random. They are similar to phone numbers but have more complicated structure and consist of a combination of figures and English letters in different cases.
The problematic issue is that Bitcoin-addresses aren’t bidirectional. When you receive a money transfer from a person and after some time you plan to return the funds, you may face a problem of identification of a wallet-address you’re going to sent money to. The wallet you received a payment from before might belong both to a person you know and a money transfer service. Sending funds to a wrong address you lose funds.
After receiving a payment it is almost impossible to identify a sender. Having learned such details, uninformed people become victims of the stereotype that transactions with Bitcoin wallets are dangerous. Mistaken opinion is due to lack of understanding of confidentiality principles. Despite lack of information many users defy danger of re-using addresses.
It is appropriate here to draw a parallel between Bitcoin-addresses and Internet prior to implementation of DNS standard when users had to use a complex combination of figures to access the network. Developers invented a mechanism of hiding IP-addresses and linked them to domain names. It is much easier to work using common names (for example, Google.com.) instead of entering a confusing set of figures to access the network.

Advantages and disadvantages
 
Introduction of an address resolution system allows linking it to specific people or legal entities. Operating in a manual mode you have to be careful. Solution of the address binding problem is only a visible part of an iceberg. It is necessary to simplify a mechanism of processing money transfers. The idea of creating an analogue of modern search engines was approved by users; however, from the point of view of transaction security it bears the risks. Bitcoin would become a refuge for online-pirates.
It is necessary to find a balanced solution, develop the most appropriate standard for combining security and confidentiality in accordance with requirements of both ordinary users and businesses which are not pleased with a possibility of disclosing their financial activity and commercial secrets.
Historical patterns
 
To resolve the problem developers of the cryptocurrency used the results of old cryptographic researches. Using a function of key formation and a principle of multilevel control (deployed at the turn of the centuries) helped in solving the problem of wallets’ backup in 2013. Having created a key once (during registration process), users can use it to control any number of Bitcoin addresses.
The age of cryptographic developments began in the latter half of 1970s. Staunch supporters continued improving methods; they believed in the future of cryptography. Researches, conducted by enthusiasts, became the basis for the technology of setting secured anonymous interoperation between two computers. Investigations carried out by Diffie, Hellman and Merkle were successful, so computers “learned” to operate using identical keys. Developers of the virtual monetary unit work towards creation of addressing scheme. Recently Justus Ranvier has succeeded to create a code for mobile devices. Implementation of the scheme in 2016 will allow improving the mechanism of confidentiality for blockchain users with continued possibilities of identification.
Users may search for friends or business partners using social networks or e-mail addresses. Companies and organizations will have an opportunity to build peer-to-peer financial system for attracting numerous users who admitted advantages of Bitcoin over fiduciary money.