2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)

The Role of Cryptography in Cryptocurrency

2021 2nd International Conference on Secure Cyber Computing and Communications (ICSCCC) | 978-1-6654-4415-6/20/$31.00 ©2021 IEEE | DOI: 10.1109/ICSCCC51823.2021.9478099

Surya Prakash Gupta Kushagra Gupta B. R. Chandavarkar

Department of CSE Department of CSE Department of CSE
NIT, Karnataka NIT, Karnataka NIT, Karnataka
Surathkal, Karnataka, India Surathkal, Karnataka, India Surathkal, Karnataka, India
suryapg041996@gmail.com kushagra.guptacse@gmail.com brcnitk@gmail.com

Abstract—In today’s world of digital media, people are mainly
sharing all of their resources via digital platforms. Today, in
almost all regions across the globe, the physical exchange of
money is becoming less in practice. People are more flexible
with buying and paying for their necessities via digital platforms
rather than exchanging physical money. Cryptocurrency, the
new global money for the internet age, is also a medium
of exchange similar to other currencies. Still, here, the sole
purpose of the exchange is via digital means. How secure is your
cryptocurrency? How anonymous are users of cryptocurrencies?
Since the currency is digital, it is more prone to attacks,
data theft, and money. Here comes the role of cryptography.
Cryptography is an essential mechanism for securing information
in computer systems. Without cryptography, cryptocurrency is
just a central hub for attackers and scammers. Cryptocurrency
requires cryptography for mainly two purposes; to secure the
transactions and to verify these transfers. This paper discusses
the types of cryptographic techniques used in cryptocurrencies,
studies their characteristics, and explores the working of these
techniques.
Index Terms—Hash functions, Proof-of-work, Merkle Tree,
Digital signatures, ECC, ECDSA
I. I NTRODUCTION
With the technological advancements in digital payments,
the use of virtual money is overgrowing. This virtual money
holds the same monetary value as physical money, but it is
present in digital form. A cryptocurrency is a digital currency
that acts as an asset that can be exchanged between two parties
resulting in a transaction. This transaction is in agreement with
both the parties, and hence it is said that they have finalized
the exchange digitally. This transaction is also secured using
cryptography, and thus the term cryptocurrency was coined.
Cryptocurrencies use a decentralized technology that allows
users to do transactions securely without the help of any
intermediary moderator like a bank. It is a system that is
neither regulated by any centralized authority nor tracked by
any financial institution. This digital asset is supported by a
technology called blockchain [1], a peer-to-peer network of
nodes, also known as blocks containing all the transaction
details at each stage between the two parties. These blocks are
linked and get security using cryptography. There are various
types of cryptocurrencies like Bitcoin(BTC), Litecoin(LTC),
Ethereum(ETH) [2], etc., where Bitcoin was the first one to
be introduced. A cryptocurrency has a ledger that is simply
a record book that maintains the parties involved, how much
balance they are left with and a record of all the transactions
done by them in the network. This ledger is public to provide
transparency and give a fair chance to everyone in the network.
Since the ledger is public, we need a reliable mechanism to
secure these records present in the blocks. This is achieved
using cryptography. What is cryptography? In simple words, it
is a study of secure communication. One person like you or me
will encrypt a message, and the other person can then decrypt
it. But why do we need cryptography in cryptocurrency as
cryptocurrencies like bitcoin are public, and hence no need
for different cryptography methods? But we still make use
of some techniques of cryptography like hashing and digital
signatures. So, what role do they play in cryptocurrency?
As we know, a cryptocurrency needs to maintain a way for
someone to prove their identity and also to verify the integrity
of a large number of user’s accounts data which is possible
by those techniques of cryptography. Without cryptography,
it would not have been easy to ensure that your transactions
remain hidden and to bring such safety measures, we need
to introduce cryptography in cryptocurrency. The underlying
principle behind cryptocurrency is not the banks verifying the
transactions but instead an intelligent and intelligent system
that uses a decentralized mechanism that depends upon some
mathematics used in cryptography.
Structure of the paper
Here is the structure of the paper: Section 2 discusses
the cryptographic hash function and its properties. Section 3
discusses the hashing algorithms which are used in various
cryptocurrencies in brief. Section 4 discusses the applications
of hash functions in cryptocurrencies. Section 5 discusses the
elliptic curve cryptography and elliptic curves over finite fields.
Section 6 discusses the digital signature and its working. Sec-
tion 7 discusses the elliptic curve digital signature generation
and verification algorithm. Section 8 discusses the conclusion
of the study.
II. C RYPTOGRAPHIC H ASH F UNCTIONS
As the name suggests, the cryptographic hash function is a
mathematical function that takes input data and produces an
output having a fixed size. This output is known as a hash.
This hash is an enciphered text that is used in place of the
input text. A cryptographic hash function is required to be
efficiently computable, which means we should find the output
in a reasonable amount of time using the algorithm. It is a

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2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)

Bitcoin address creation: The Bitcoin address is a unique

address that works as a virtual location where an individual
can send cryptocurrency to another individual. A secret key,
which is a randomly selected number, is multiplied using an
elliptic curve to generate a Bitcoin address. It then gives us the
public key. This public key is then encrypted with both SHA-
256 and RIPEMD-160 [5] algorithms. The Bitcoin address
looks something like the following form:

12oFGd7f2P9K59tk90ekj5r6oTrh5hKaj2

Fig. 1. Variation in hash value after slight change in text The Bitcoin address is computed as follows:

A=RIPEMD-160(SHA-256(K))
one-way function; hence not possible to invert quickly. There here, K is Public Key and A is Bitcoin Address.
is only one way to get back the input that has produced the
output, which is by doing a brute-force search on all the sets
of possible inputs and generating the outputs from all those TABLE I. Comparison of various hash functions [6]
input sets, and checks the produced hash whether it matches
with the previous hash or not. There is something called an

Message(bits)

Block(bits)

Word(bits)

Hash(bits)
ideal hash function which has specific properties listed below.

Rounds
• It is deterministic, which means that whenever a message
is passed to the hash function as input, it will always
generate the same hash value. MD5 upto 264 512 32 128 80
SHA-1 upto 264 512 32 160 80
• The hash value should be quickly computed.
SHA-256 upto 264 512 32 256 64
• It is infeasible to get the message used to find the hash
SHA-384 upto 2128 1024 64 384 80
if the hash value is provided to you. SHA-512 upto 2128 1024 64 512 80
• It is infeasible that two dissimilar messages will result in
a similar hash value.
• By modifying the input message with just a tiny change,
the generated hash should be extensively changed such
B. Ethash
that it differs from the old hash up to a large ex-
tent(avalanche effect). [3]. Ethash [7] algorithm is designed for the cryptocurrency
Ethereum. Ethash is a member of the KECCAK [8] family
III. H ASHING A LGORITHMS USED IN C RYPTOCURRENCY
which is similar to the standard SHA-3 algorithm. It is a
A. SHA-256 memory-heavy algorithm that requires a huge amount of
SHA is short for Secure hash algorithms. It is a family memory, i.e., CPU cycles, to run on a machine. Because of
of hash functions consisting of SHA-1, SHA-2 and SHA-3. its memory-intensive nature, it is not suitable for ASIC miners
The Bitcoin cryptocurrency, SHA-256 algorithm is used, which [9].
belongs to the family of SHA-2. To provide additional security,
Bitcoin uses the SHA-256 function twice, a process known as
C. Scrypt
double-SHA-256. Table 1 shows the description of SHA-256
and the comparison of it with a different set of hash functions Scrypt [10] is mainly used in the cryptocurrencies like
SHA-256 is used in the different parts of the Bitcoin network. Litecoin and Dogecoin. It is a key derivation function(KDF)
• SHA-256 is used in the Mining as the Proof of Work in which it takes an input value and produces one or more
algorithm. secret keys. The input can be a password or simply a key. In
• SHA-256 is used in the Bitcoin address creation for cryptocurrencies, a simplified version of it is used.
improved security and privacy.
Mining: In mining, the newly created blocks are introduced D. CryptoNight
into the blockchain. It’s just another name of Proof-of-Work
[4] which is the original consensus algorithm of the blockchain CryptoNight [11] is an algorithm designed for the general-
network. An individual must know some parameters which are purpose computer CPU’s. To this day, there is no specifically
required to construct a block. The values of the parameters are designed mining device developed for it. The sole purpose
hashed to produce the block hash. After the successful creation for the development of this algorithm was to avoid applying
of the block, the miner can start the mining process. We will specific integrated circuits(ASIC). It is used in various cryp-
discuss in detail the mining process(a.k.a Proof-of-Work) later. tocurrencies like Bytecoin, Monero, Dashcoin etc.

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2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)
IV. A PPLICATIONS OF C RYPTOGRAPHIC HASH FUNCTION
IN CRYPTOCURRENCIES
A. Proof-of-Work
Proof-of-Work is the original consensus algorithm of the
blockchain network. This algorithm is used to verify trans-
actions and generate new blocks in the chain. With PoW,
miners compete with each other to complete transactions on
the network for which they are rewarded. In the network, users
send each other digital tokens. There is a decentralized ledger
that holds all the records of the transactions. However, care
must be taken to ensure the security of the transactions and
also the arrangement of the blocks. This responsibility is given
to special nodes called miners and the process is known as
mining.
Working principle of the Proof-of-Work: The main work-
ing principle behind the PoW algorithm involves solving a
complicated mathematical puzzle and providing proof of that
particular solution. The puzzle is so much complex that it
requires a lot of computational power to solve. In the case of
Bitcoin, this puzzle is known as Hashcash [12]. Initially, this
puzzle was used for limiting email spam and denial-of-service
attacks, but nowadays, it is mainly used in Bitcoin in its mining
algorithm. The algorithm works relative to a challenge string
say C. Miners have to solve the challenge and must come up
with a resultant string say P also known as a proof string.
Here comes the role of the cryptographic hash function. This
resultant string P is when combined to the challenge string C,
the result string says R is passed to the hash function, which
is typically SHA-256 in the case of Bitcoin. The resultant
hash value has a specific property. For example, let’s say the
property is that the hash value generated contains 20 zeroes at
the starting. As we already know that a hash function a one-
way function, it is nearly impossible to reverse, so the proof
string P is tough to detect. Here we can visualize the effort
the miner has made. The miner has done some work using
adequate computational power and generated proof that can
be used to validate the work, and hence it is termed as Proof-
of-Work. It is easy to validate whether the Proof-of-Work is
correct or not. It just requires the hash generated by combining
the challenge string C and the proof string P. The real work
is to find the proof string P which the miners do, and that’s
why they are rewarded for their work [13].
Implementation of Proof-of-Work in the blockchain: In the
blockchain, the Proof-of-Work algorithm is implemented in
the form of hashed blocks, meaning the hash of each block
is present in the block itself. Each block contains the hash of
the previous block, which is done for additional security and
avoids any block violation. The responsibility of adding the
block after verifying it is given to the miner. The complexity
of the puzzle required to be solved by the miner depends on
the number of users, the power, and the load of the network.
When a new block is added to the blockchain, it is concluded
that the transaction present in the block is confirmed.
51% attack: In the blockchain network, there is a possibility
in which a single entity can gain control of the majority of
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Fig. 2. An example of a merkle tree [15].
the network. This vulnerability is termed as a 51% attack.
In that case, the entity would have enough power to modify
the transactions. Such an entity can exempt the miners from
generating and adding new blocks. 51% attack is not so
economical and hence requires a lot of computational power.
If it gets succeeded, we say that the network is compromised.
This affects the price of the cryptocurrency to go down and
hence impacts the overall value of the cryptocurrency.
B. Merkle tree
In merkle tree, all the leaves are encrypted with a hash of
data blocks, and non-leaf nodes are again encrypted with the
hash of their children. A typical example of the structure of the
Merkle tree is shown in Fig 3. Merkle trees allow for effective
and secure authentication of the content of extensive data.
This type of structure helps ensure the consistency of the data,
and hence both the cryptocurrencies Bitcoin and Ethereum use
Merkle trees.
The compression process of the hash function was executed
to an excessive degree when the initial Bitcoin implementation
of Merkle trees was done by Satoshi Nakamoto. Later it was
reduced using Fast Merkle Trees [14].
C. Signature generation and verification
Cryptographic hash functions play a significant role in
signature generation and verification. The message integrity
property of the cryptographic hash helps create reliable dig-
ital signatures. These digital signatures are employed in a
blockchain network to provide additional security along with
the hash function. Each transaction that is carried out in the
network is signed by the electronic signature of the sender
using the private key. Hash functions ensure the security of
the network while the digital signature ensures authenticity,
i.e., it makes sure that the transactions are performed by valid
users only.
V. E LLIPTIC CURVE CRYPTOGRAPHY
Elliptic curve cryptosystems are in wide use today, like in
TLS [16], SSH [17], Bitcoin, and many other cryptocurrencies.
The Elliptic curve cryptography (ECC) belongs to public-
key cryptography. It relies on two things. The first one is
2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)
elliptic curves over finite fields, and the second one is the
discrete logarithm problem. It is used in the implementation of
signatures, encryption, and key exchange. The private keys in
the ECC are integers typically of 256-bit, and the public keys
are represented by the pairs of integer coordinate (x, y), on the
curve. These points are known as EC points. ECC algorithms
use a variety of elliptic curves as these curves can be useful in
providing different security levels, i.e., cryptographic strength,
performance, key length, etc. Some of the curves which are
adopted by security standards have a name like secp256k1 or
Curve25519, and there are various ECC key sizes which can
be made based on these curve. Cryptocurrency like Bitcoin
or Ethereum deals with the secp256k1 curve. ECC provides
several algorithms, out of which the majority of the cryp-
tocurrencies make use of ECC digital signature algorithm like
ECDSA. All of these algorithms use public/private keys, and in
addition to that, they depend on the discrete logarithm problem
for calculations. Elliptic curves are curves in two dimensions
whose points satisfy the Weierstrass equation y 2 = x3 +ax+b
and the parameters of the curve are a and b, and also the
curves are symmetric about the x-axis. Now they vary in shape
depending on what a and b are, for example, the NIST curve
secp256k1 which is used in Bitcoin make use of this curve:
y 2 = x3 + 7.
A. EC Over finite fields
ECC makes use of the finite field [18] Fp (where p is prime
and p > 3) or F2m (where the field size p = 2m). The finite
field is a p × p matrix, and all the coordinates lie within
the field itself. Operations like matrix addition and matrix
multiplication give us another point that lies within the field.
The following modular form of the elliptic curve equation over
the finite field Fp is: y 2 ≡ x3 +ax+b (mod p) and the bitcoin
curve secp256k1 takes the form: y 2 ≡ x3 + 7 (mod p) which
can be observed from Fig 4 [19]. A finite field curve can be
represented in a finite cyclic algebraic group [20], and that
group contains all the curve points.
The curve order is the total number of all EC points. There is
a unique point called point at infinity [21]. This unique point
is obtained after multiplying the point by 0. Those curves that
hold all of their EC points form a single cyclic group, whereas
those containing only a subset form other non-overlapping
cyclic subgroups. In the second case, the points are split into
h cyclic subgroups (partitions), each of order r (each subgroup
holds an equal number of points). The n = h × r is the order
of the entire group. Here h is the count of the subgroups, and r
is the count of the points in each subgroup. Here, the number
of subgroups formed by all those EC points is termed as the
cofactor. An example of elliptic curve having cofactor = 1 is
secp256k1.
The thing about an elliptic curve is that in our modular
arithmetic, we had numbers going around some modulo, just a
list of numbers. Here we have a cycle of points somewhere on
this curve, so our generator G will be a point on this curve. It
is a constant present on the curve and is capable of generating
any other point in its subgroup if it is multiplied by any number
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Fig. 3. y 2 ≡ x3 + 7 (mod 17) [19]
in the range [0...r]. Because of that, we’re moving around this
curve sort of seemingly at random. Let’s consider that if I give
you a point on the curve and say how many multiples of G is
that. Then any ideas? It could be 50G, or it could be 5 billion
G. There’s no way of knowing, and that is our private key, and
that’s the thing we can’t extract back out here. For this curve,
the total number of possible private keys is defined by r which
is the order of the subgroup. To ensure that the keyspace is of
certain cryptographic strength, we will try to select cofactor,
generator, curve equation, etc., effectively. When we multiply
G by a certain integer m which is a private key, we obtain an
EC point Q which is the public key. We can calculate Q =
m × G, using the well-known ECC multiplication algorithm
like the double-and-add algorithm [21] in time log2 (m) [22].
It is extremely slow and it can even be considered infeasible
for large m to calculate m = Q G . ECC security strength comes
from this dissymmetry which can be easily obtained by using
the Elliptic curve discrete logarithm problem (ECDLP).
Now, the question comes why we are considering the
elliptical curve? This looks like it’s bringing unnecessary
complications. In some sense, it is slightly more complicated,
but actually, it’s much more efficient mathematically. The
elliptic curve discrete logarithm problem is a little bit harder
to solve than the common discrete logarithm problem, which
means that elliptic curves can get away with shorter key sizes,
and that means less computation. Now the question arises
which curve should we consider? There are debates over what
curves are safe to use. A lot of people use the NIST P 256
curve, but some people or researchers don’t think that it’s
secure because it may be thought they’ve taken shortcuts on
some of the parameters for efficiency reasons. The X25519
[23] curve is quite well-regarded because they’ve gone to great
lengths to demonstrate how they came up with their variables
and why it’s used. Cryptocurrency like Bitcoin or Ethereum
mainly uses Secp256k1 as their elliptical curve.
VI. D IGITAL S IGNATURES
A digital signature is a helpful mathematical tool in pro-
viding authenticity of digital messages or documents. When a
digital signature is signed, it gives confidence to the recipient
2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)

that the sender was authentic and the message was not modi-
fied in transit. Digital signatures are used for signing electronic
documents, signing blockchain transactions, and many other
cases. A well-known digital signature scheme like ECDSA
which we will discuss in Section 7, is being used in many
cryptocurrencies.
A. Working of Digital Signatures in Cryptocurrency
Let’s discuss the working of digital signatures using an
example and understand how they are essential in cryptocur-
rency. Assume you and your friends exchange money pretty
frequently, paying your share for dinner or bills, etc., but it can
be inconvenient to exchange cash all the time. So you might
keep something called a ledger [24] that records payments you
intend to make in the future. This ledger is public to everyone
sign transactions are derived from specific parameters. Table
II gives you a clear idea that ECDSA is one of the most used
signatures by different cryptocurrencies.
In this context, Alice tries to send a message to Bob, which
she will sign digitally before transmitting. Upon reception of
the message, Bob needs to verify whether Alice or some other
user sent the message. The parameters E(EllipticCurve), G
on E of order n are publicly available. Alice will choose a
random integer privKey as her private key from the range
[1...n − 1]. She will facilitate her public key pubKey =
privKey ∗ G to a Central Authority(CA) where the key will
be stored publicly.
TABLE II. Signatures used in crytocurrency. [25]

Multi-Signature
where you can add a few new lines, and at the end, you all

Borromean
look through the list of transactions and tally everything.

One-Time
ECDSA

EdDSA
Now let’s discuss what problem it can cause. One problem

Ring
with a public ledger is that when anyone can add a line, there
is no one preventing Adam from going in and writing? Adam Bitcoin
can easily add a line saying that Alice has paid Adam 2.5 BTC Ethereum
without Alice Approving? How are we supposed to trust all Litecoin
these transactions? Now the first bit of cryptography comes Monero
in: Digital signatures. Like a regular handwritten signature, Ripple
Alice will add something next to a transaction that proves that Zcash
she has seen it and approved it, and it should be infeasible for
anyone else to forge her signature. But how do you prevent
forgeries? We can prevent forgeries by generating public and A. ECDSA signature generation
private key pairs, each of which looks like some string of The signing algorithm’s input is a message msg +
bits. The handwritten signature looks the same no matter what a private key and output is a signature, which consists of
documentation you’re signing in the real-world scenario, but pair of integers (r, s). The signing algorithm works as follows:
a digital signature is much stronger because it changes for
different messages. Altering the message even slightly changes
Algorithm 1: ECDSA signature generation
what your signature on the message should look like at the 2 3
1 Elliptic curve(E) : y = x + ax + b over Fp
output. A function that entirely depends on the message and
2 a = 0, b = 7
your private key will help us produce the signature. The secret
3 G : Generator point in E
key ensures that only you can create the signature, and the fact
4 n : Prime order
that it depends on the message means no one can copy one of
5 h ←− SHA-256(msg)
your signatures to forge it on another message. Hand-in-hand
6 m ←− [1...n − 1]
is a function to verify that a signature is valid or not, which is
7 compute: (x, y) = m × G
where the public key comes into play. It is entirely infeasible
8 x−coordinate: r = x (mod n)
for anyone to find a valid signature if he/she doesn’t know −1
about the private key. We can make only guesses and check if 9 sign: s = m × (h + r × privKey) (mod n)
10 if s = 0 then GOTO step 6
random signatures are correct using the public key until you
11 return (r, s)
find the correct one.

VII. E LLIPTIC C URVE D IGITAL S IGNATURE A LGORITHM

Elliptic Curve Digital Signature is one of the building block
algorithms for cryptocurrency. Since cryptocurrencies are de-
centralized, the transactions related to them will not include
any third party, but instead, the communication between the
two parties will entirely depend on cryptography. In that case,
ECDSA, which is a digital signature scheme based on elliptic
curve cryptography, will be used to prove any cryptocurrency
ownership and sign those cryptocurrency transactions. ECDSA
keys will be used to generate cryptocurrency addresses, and
B. ECDSA verify signature
The algorithm takes as input the signed msg + the signature
(r, s) generated from the signing algorithm + the pubKey
which Bob obtained from the CA. The output is either valid
or invalid signature. The verify algorithm works as follows :
The primary notion of the signature verification is to obtain
the point r’ using the public key and check whether it is the
same point r. If they are the same, then Bob can be assured
that the message is authentic, and hence he will accept it.

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2021 Second International Conference on Secure Cyber Computing and Communication (ICSCCC)
Algorithm 2: ECDSA verify signature
2 3
1 Elliptic curve(E) : y = x + ax + b over Fp
2 a = 0, b = 7
3 G : Generator point in E
4 n : Prime order
5 h ←− SHA-256(msg)
0 −1
6 compute: s = s (mod n)
0 2019. https://www.investopedia.com/terms/a/asic.asp.
7 compute: v1 = h × s (mod n)
0 [10] “Scrypt,” 2009. https://en.wikipedia.org/wiki/Scrypt.
8 compute: v2 = r × s (mod n)
9 compute: (x, y) = v1 × G + v2 × pubKey
0 [13] S. Seang and D. Torre, “Proof of Work and Proof of Stake Consensus
10 x−coordinate: r = x (mod n)
11 accept←→r’==r
Suppose a random user Mike wants to claim himself as
Alice. He will generate a false message msg and selects a
random integer m and computes (x, y) = mQ where Q is
another random point on the curve. He then computes r = x
(mod n) and in addition to that computes m−1 and h. Now
Mike has to correctly obtain s in such a way that r0 == r.
Since the signature s is dependent upon Alice’s privKey,
Mike has to apply some mechanism to get the signature s
despite knowing Alice’s privKey or he has to solve the
ECDLP to obtain Alice’s privKey successfully.
VIII. C ONCLUSION
The use of technology in cryptocurrencies is increasing
rapidly. However, the security of cryptocurrencies is an im-
portant issue. Although we have discussed the role of SHA-
256/ECDSA algorithm, we have observed that there are still
advancements required for better security reasons, and re-
searchers are working on those continuously. ECDSA is one of
the most used digital signatures by many cryptocurrencies, but
we can still observe that it is not the only signature available
for use. There are other options as well, having their pros and
cons. We have even observed that despite many standardized
algorithms being developed by certain organizations, there
are no strict protocols that cryptocurrencies have to follow
or implement. Since cryptocurrencies are decentralized, they
are defining their protocols instead of using standardized
ones. For an example, the cryptocurrency Ethereum is using
KECCAK-256 algorithm [8] instead of the NIST standardized
SHA-3. Can we say that the cryptographic techniques which
are present to date are sufficient enough? The answer is a
big NO. As per the recent data [26] there are more than
2000 cryptocurrencies in the market. So, the security-related
requirements of cryptocurrencies will always be there in need.
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