Today I want to go over a concept that is at the very core of cryptocurrency and I want to show you why it’s so important.

So let’s take a look at encryption and how it is changing.

You’ve probably performed tasks that involved encryption without even realizing it.
All sorts of mediums these days use encryption like: WhatsApp, the messaging application claims to offer end-to-end encryption, and when you’re browsing the web the HTTPS protocol encrypts the data being sent from the server to your web browser.

Definition:

The very basic idea of encryption is to conceal data by shuffling it about and randomizing it in such a way that it becomes extremely obscured. With encryption comes the need for an encryption key. You can liken this key to the Rosetta Stone and how that worked to decipher Egyptian Hieroglyphics.

This is when we can start seeing these encryption practices in cryptocurrency today.

You may be familiar with the phrases public and private keys. In order to send or receive crypto coins to and from a wallet, you’ll need to know either your public or private key. Here’s the difference between the two and it is very important that you can recognize and understand the weight of this. Public keys are what enable you or anyone to deposit coins into a wallet, that’s it.

Private keys are what allow coins to be withdrawn from a wallet. So unless you want others to have the ability to withdraw coins from your wallet, you’d better keep your private keys private.

Encryption is very important for cryptocurrency because it is what keeps your coins from being copied and stolen. Encryption is what keeps your coins, your coins.

The beauty of cryptocurrency is that it allows you to be in control of your money, this means that it is now your responsibility to follow safe practices when it comes to storing and transferring your cryptos.

Now that you’ve got a little refresher on what encryption is and why it is at the core of cryptocurrency, let’s take a look at how encryption is being applied in new ways.

There’s a software that uses a certain type of encryption, it’s called Tor.
The name represents the original project name and the type of encryption used, “The Onion Router”.
Tor uses what’s called onion routing, and this is the type of encryption that Bitcoin is looking into to bolster it’s anonymity.

Onion routing is an encrypted form of communicating data. For crypto it would be used for communicating transactions.
Basically, it’s a network of nodes that work to send data from point A to point B.
Each node only knows where the data came from immediately preceding it, and where it is sending the data immediately after it.
So let’s say there are 5 nodes, node #1 only knows that you’ve sent it data and that it’s then required to send it to node #2. Node #2 then only knows that node #1 sent it data and that it must send it to node #3. No node knows the entire line of communication or if where it’s sending it to is the final destination.
This in itself is not impossible to crack in regards to following a transaction from start to finish, so in addition to these multiple nodes, there are separate layers of encryption for the channels of communication between each node. This is what ensures anonymity.
Here's a great video that shows exactly how onion routing works

I can’t talk about Tor without giving this warning:

Only use Tor if you’re completely confident in your ability to navigate a space that is filled with hackers. Like it or not, Tor is a playground for them and if you don’t know any better you’ll probably end up exposing your computer and its data to others who are good at breaking in.

There’s a new privacy focused cryptocurrency out there called Deeponion, this one uses the Tor network to utilize this very type of encryption. There have been some concerns regarding the fact that this one was premined and the way in which the developer chose to distribute those coins, but regardless, it’s an interesting project to keep an eye on to see how it’s privacy features and community develop.

Additional Reading/Sources:

What is encryption
Why there is a stigma
History of Encryption
How to use encryption for your data
What is Onion Routing
Great Explanation & Visual of onion routing by Computerphile