Encryption is the transformation of readable data into an encoded form using an algorithm and key so that the original information cannot be practically recovered without the appropriate key.

Encryption is used to protect data both during transmission and while stored. In cryptocurrency infrastructure, it can protect network communications, wallet files, backups, and other sensitive information.

Encryption must be distinguished from hashing. Encryption is designed to be reversible when the correct key is available, while a cryptographic hash is normally a one-way transformation producing a fixed-size output.

Main categories

  • Symmetric encryption uses the same secret key for encryption and decryption.
  • Asymmetric cryptography uses a key pair and is used, among other things, for digital signatures and secure communication protocols.

Encryption does not guarantee security by itself. If the encryption key is stolen, an attacker may be able to decrypt the protected data. Key management is therefore as important as the encryption algorithm.

Cryptocurrency users should also distinguish encryption from blockchain transaction security. Public blockchain data is generally not hidden by encryption. Its integrity and authorization are provided through mechanisms such as digital signatures and cryptographic hashes.