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judymcconville@roadrunner.com 2017-05-03 09:04:12 -07:00
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=== Introduction
((("digital keys", see="keys and addresses")))((("keys and addresses", "overview of", id="KAover04")))((("digital signatures")))Ownership of bitcoin is established through _digital keys_, _bitcoin addresses_, and _digital signatures_. The digital keys are not actually stored in the network, but are instead created and stored by users in a file, or simple database, called a _wallet_. The digital keys in a user's wallet are completely independent of the bitcoin protocol and can be generated and managed by the user's wallet software without reference to the blockchain or access to the internet. Keys enable many of the interesting properties of bitcoin, including decentralized trust and control, ownership attestation, and the cryptographic-proof security model.
((("digital keys", see="keys and addresses")))((("keys and addresses", "overview of", id="KAover04")))((("digital signatures", "purpose of")))Ownership of bitcoin is established through _digital keys_, _bitcoin addresses_, and _digital signatures_. The digital keys are not actually stored in the network, but are instead created and stored by users in a file, or simple database, called a _wallet_. The digital keys in a user's wallet are completely independent of the bitcoin protocol and can be generated and managed by the user's wallet software without reference to the blockchain or access to the internet. Keys enable many of the interesting properties of bitcoin, including decentralized trust and control, ownership attestation, and the cryptographic-proof security model.
Every bitcoin transaction requires a valid digital signature to be included in the blockchain, which can only be generated with a secret key; therefore, anyone with a copy of that key has control of the bitcoin in that account. ((("witnesses")))The digital signature used to spend funds is also referred to as a _witness_, a term used in cryptography. The witness data in a bitcoin transaction testifies to the true ownership of the funds being spent.
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==== Public Key Cryptography and Cryptocurrency
((("keys and addresses", "overview of", "public key cryptography and cryptocurrency")))Public key cryptography was invented in the 1970s and is a mathematical foundation for computer and information security.
((("keys and addresses", "overview of", "public key cryptography")))((("digital currencies", "cryptocurrency")))Public key cryptography was invented in the 1970s and is a mathematical foundation for computer and information security.
Since the invention of public key cryptography, several suitable mathematical functions, such as prime number exponentiation and elliptic curve multiplication, have been discovered. These mathematical functions are practically irreversible, meaning that they are easy to calculate in one direction and infeasible to calculate in the opposite direction. Based on these mathematical functions, cryptography enables the creation of digital secrets and unforgeable digital signatures. Bitcoin uses elliptic curve multiplication as the basis for its cryptography.
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.Why use asymmetric cryptography (public/private keys)?
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((("cryptography", "assymetric")))((("digital signatures")))((("asymmetric cryptography")))Why is asymmetric cryptography used in bitcoin? It's not used to "encrypt" (make secret) the transactions. Rather, the useful property of asymmetric cryptography is the ability to generate _digital signatures_. A private key can be applied to the digital fingerprint of a transaction to produce a numerical signature. This signature can only be produced by someone with knowledge of the private key. However, anyone with access to the public key and the transaction fingerprint can use them to _verify_ the signature. This useful property of asymmetric cryptography makes it possible for anyone to verify every signature on every transaction, while ensuring that only the owners of private keys can produce valid signatures.
((("cryptography", "assymetric")))((("digital signatures", "asymmetric cryptography and")))((("asymmetric cryptography")))Why is asymmetric cryptography used in bitcoin? It's not used to "encrypt" (make secret) the transactions. Rather, the useful property of asymmetric cryptography is the ability to generate _digital signatures_. A private key can be applied to the digital fingerprint of a transaction to produce a numerical signature. This signature can only be produced by someone with knowledge of the private key. However, anyone with access to the public key and the transaction fingerprint can use them to _verify_ the signature. This useful property of asymmetric cryptography makes it possible for anyone to verify every signature on every transaction, while ensuring that only the owners of private keys can produce valid signatures.
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[[private_keys]]
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[[p2sh_addresses]]
==== Pay-to-Script Hash (P2SH) and Multisig Addresses
((("keys and addresses", "advanced forms", "pay-to-script hash and multisig addresses")))((("Pay-to-Script-Hash (P2SH)")))((("multisig addresses")))((("addresses", "multisig addresses")))As we know, traditional bitcoin addresses begin with the number “1” and are derived from the public key, which is derived from the private key. Although anyone can send bitcoin to a “1” address, that bitcoin can only be spent by presenting the corresponding private key signature and public key hash.
((("keys and addresses", "advanced forms", "pay-to-script hash and multisig addresses")))((("Pay-to-Script-Hash (P2SH)", "multisig addresses and")))((("multisig addresses")))((("addresses", "multisig addresses")))As we know, traditional bitcoin addresses begin with the number “1” and are derived from the public key, which is derived from the private key. Although anyone can send bitcoin to a “1” address, that bitcoin can only be spent by presenting the corresponding private key signature and public key hash.
((("bitcoin improvement proposals", "Pay to Script Hash (BIP-16)")))Bitcoin addresses that begin with the number “3” are pay-to-script hash (P2SH) addresses, sometimes erroneously called multisignature or multisig addresses. They designate the beneficiary of a bitcoin transaction as the hash of a script, instead of the owner of a public key. The feature was introduced in January 2012 with Bitcoin Improvement Proposal 16, or BIP-16 (see <<appdxbitcoinimpproposals>>), and is being widely adopted because it provides the opportunity to add functionality to the address itself. Unlike transactions that "send" funds to traditional “1” bitcoin addresses, also known as pay-to-public-key-hash (P2PKH), funds sent to “3” addresses require something more than the presentation of one public key hash and one private key signature as proof of ownership. The requirements are designated at the time the address is created, within the script, and all inputs to this address will be encumbered with the same requirements.