The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

Public key cryptography is a method for authentication that relies on a set of mathematically related numbers: a private key, a public key, and one or more signatures. The private key, which must be kept secret, can generate a public key that can be distributed freely because it is not possible to determine the private key by examining the public key. This method is used for authentication: after someone publicizes his public key, he can hash some data and then sign that hash with his private key to create a signature. Anyone with the same data can create the same hash and see that it was used to create the signature; then she can compare the signature to the public key she previously received and see that they're both mathematically related, proving that the person with the private key signed the data covered by the hash. Bitcoin utilizes public key cryptography to allow secure value exchange over an open unsecured network. A bitcoin holder can only access his bitcoins if he has the private keys attached to them, while the public address associated with them can be distributed widely. All network members can verify the validity of the transaction by verifying that the transactions sending the money came from the owner of the right private key. In bitcoin, the only form of ownership that exists is through the ownership of the private keys.