What Is a Digital Signature?

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A digital signature is a cryptographic mechanism used to verify the authenticity and integrity of digital data. We can consider it as a digital version of ordinary handwritten signatures, but with higher levels of complexity and security.

In simple terms, we can describe a digital signature as a code that is attached to a message or document. Once generated, the code acts as proof that the message has not been tampered with on its way from sender to receiver.

Although the concept of protecting communications using cryptography dates back to ancient times, digital signature schemes became a possible reality in the 1970s, thanks to the development of public-key cryptography (PKC). So to learn how digital signatures work, we must first understand the basics of hash functions and public-key cryptography.

Hash functions.

Hashing is one of the essential elements of a digital signature system. The hash process involves transforming data of any size into fixed-size output. This is done by a special type of algorithms called hash functions. The output generated by a hash function is known as a hash value or message digest.

When combined with cryptography, so-called cryptographic hash functions can be used to generate a hash value (hash) that acts as a unique digital hash. This means that any change in the input data (message) would result in a completely different output (hash value). And that's why cryptographic hash functions are widely used to verify the authenticity of digital data.

Public Key Cryptography (PKC)

Public key cryptography, or PKC, refers to a cryptographic system that uses a pair of keys: a public key and a private key. The two keys are mathematically related and can be used for both data encryption and digital signatures.

As an encryption tool, PKC is more secure than more rudimentary symmetric encryption methods. While older systems rely on the same key to encrypt and decrypt information, PKC allows data encryption with the public key and data decryption with the corresponding private key.

Apart from this, the PKC scheme can also be applied to the generation of digital signatures. In essence, the process is hashing a message (or digital data) with the signer's private key. Then, the recipient of the message can verify if the signature is valid using the public key provided by the signer.

In some situations, digital signatures may involve encryption, but this is not always the case. For example, the Bitcoin blockchain uses PKC and digital signatures, but unlike many people tend to believe, there is no encryption in the process. Technically, Bitcoin deploys the so-called Elliptical Curve Digital Signature Algorithm (ECDSA) to authenticate transactions.

How digital signatures work,

In the context of cryptocurrencies, a digital signature system often includes three basic steps: hashing, signing, and verification.

Hashing the data,

The first step is to hash the message or digital data. This is done by submitting the data through a hash algorithm so that a hash value is generated (i.e. the message digest). As mentioned, messages can vary greatly in size, but when hashed, all of their hash values are the same length. This is the most basic property of a hash function.

However, hashing the data is not required to produce a digital signature because a private key can be used to sign a message that has not been hashed at all. But for cryptocurrencies, the data is still hashed because dealing with fixed length summaries makes the whole process easier.

Signing

After the information has been hashed, the sender of the message must sign it. This is where public key cryptography comes into play. There are several types of digital signature algorithms, each with its own particular mechanism. But essentially, the hashed message will be signed with a private key, and the recipient of the message can then verify its validity using the corresponding public key (provided by the signer).

In other words, if the private key is not included when generating the signature, the recipient of the message will not be able to use the corresponding public key to verify its validity. Public and private keys are generated by the sender of the message, but only the public key is shared with the recipient.

It should be noted that digital signatures are directly related to the content of each message. So unlike handwritten signatures, which tend to be the same as the message, each digitally signed message will have a different digital signature.

Verifying

Let's take an example to illustrate the whole process up to the last verification step. Imagine Alice writes a message to Bob, hashes it, and then combines the hash value with her private key to generate a digital signature. The signature will function as a unique digital fingerprint of that particular message.

When Bob receives the message, he can verify the validity of the digital signature using the public key provided by Alice. This way Bob can be sure that the signature was created by Alice because only she has the private key that matches that public key (at least that's what we expect).

It is therefore crucial for Alice to keep her private key secret. If someone else gets hold of Alice's private key, they can create digital signatures and impersonate Alice. In the context of Bitcoin, this means that someone could use Alice's private key to move or spend their Bitcoins without her permission.

Why are digital signatures important?

Why are digital signatures important?
Digital signatures are often used to achieve three outcomes: data integrity, authentication, and non-repudiation.

Data integrity. Bob can check that Alice's message hasn't changed along the way. Any modification of the message would produce a completely different signature.
Authenticity. As long as Alice's private key is kept secret, Bob can use her public key to confirm that the digital signatures were created by Alice and no one else.
Non-repudiation. Once the signature is generated, Alice will no longer be able to deny signing it in the future, unless her private key is somehow compromised.

Use case

Digital signatures can be applied to various types of digital documents and certificates. As such, they have several applications. Some of the most common use cases include:

Computer science. Improve the security of Internet communication systems.
Finance. Digital signatures can be implemented for audits, expense reports, loan agreements and more.
Legal. Digital signing of all kinds of business contracts and legal agreements, including government documents.
Health care. Digital signatures can prevent prescription and medical record fraud.
Blockchain. Digital signature systems ensure that only legitimate owners of cryptocurrencies are able to sign a transaction to move funds (as long as their private keys are not compromised).

Limits

The main challenges facing digital signature systems are based on at least three requirements:

Algorithm. The quality of the algorithms used in a digital signature scheme is important. This includes the choice of reliable hash functions and cryptographic systems.
Implementation. If the algorithms are good, but the implementation is not, the digital signature system is likely to have flaws.
Private key. If the private keys are leaked or compromised in some way, the authenticity and non-repudiation properties will be invalidated. For cryptocurrency users, losing a private key can lead to significant financial losses.

Electronic signatures vs digital signatures

Simply put, digital signatures refer to a special type of electronic signature - which refers to any electronic method of signing documents and messages. So, all digital signatures are electronic signatures, but the reverse is not always true.

The main difference between them is the authentication method. Digital signatures deploy cryptographic systems, such as hashing functions, public key cryptography, and encryption techniques.

Final thoughts

Hash functions and public key cryptography are at the heart of digital signature systems, which are now applied to a wide range of use cases. If properly implemented, digital signatures can increase security, ensure integrity, and facilitate authentication of all kinds of digital data.

In the blockchain arena, digital signatures are used to sign and authorize cryptocurrency transactions. They are especially important for Bitcoin because the signatures ensure that the coins can only be spent by the people who have the corresponding private keys.

Although we have used both electronic and digital signatures for years, there is still a lot of room for growth. Much of today's bureaucracy still relies on paperwork, but we'll likely see more adoption of digital signature schemes as we migrate to a more digital system.

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