What is Cryptography? Analyzing how encryption technology becomes the guardian of digital currency

Today, cryptography has evolved into a key technology to ensure that data is not stolen or tampered with during transmission and storage. In the world of encryption, cryptography is not just a science; it is the cornerstone of the entire digital economy system.

Modern cryptography can ensure the secure transfer of encrypted assets worth trillions of dollars across global networks. From Caesar cipher to asymmetric encryption in blockchain, this discipline has undergone thousands of years of development.

Fundamentals of Cryptography

Cryptography is a discipline focused on ensuring the security of private communication between parties, with its Greek root meaning “hidden writing.” In the digital age, its core goal is to design systems capable of securely transmitting, receiving, and parsing sensitive information while preventing unauthorized third-party access or theft.

Information in modern cryptography is divided into two basic elements: plaintext and ciphertext. Plaintext refers to readable original information, while ciphertext is the transformed, unintelligible form produced through encryption. The process of converting plaintext to ciphertext is called “encryption,” and reversing ciphertext back to plaintext is called “decryption.”

The evolution of encryption technology spans human history. The earliest examples of ciphertext can be found in ancient Egyptian hieroglyphs. Julius Caesar’s invention of the Caesar cipher is a basic substitution cipher achieved through letter shifting. After the advent of computers in the 20th century, encryption technology experienced revolutionary development. Modern information systems widely adopt advanced encryption algorithms such as AES (Advanced Encryption Standard) to safeguard data security.

The Cryptographic Pillars of Blockchain Security

As one of the most promising emerging technologies today, blockchain’s security heavily relies on cryptographic foundations. In the design of Bitcoin and other encrypted assets, multiple cryptographic tools work together to build a trustless, decentralized system.

Hash functions are an indispensable cryptographic component in blockchain. They can convert input data of any length into a fixed-length output. This process is one-way, making it nearly impossible to reverse-engineer the original data. In blockchain, hash functions are widely used to create unique “fingerprints” of data, ensuring the integrity of transactions and blocks. Digital signatures are also central to blockchain security mechanisms. Based on asymmetric encryption, they allow users to sign transactions with their private keys, while others can verify the signature’s validity using the corresponding public key.

Elliptic curve cryptography used in Bitcoin is a specific implementation of asymmetric cryptography, providing high security with shorter key lengths compared to traditional RSA algorithms. This technology enables Bitcoin addresses and transaction verification without exposing users’ private information. Merkle trees, another important structure, are used for efficient verification of large amounts of data, especially in blockchain to verify whether a transaction is included in a specific block.

Modern Encryption Systems: Symmetric and Asymmetric

Modern encryption systems are mainly divided into two types: symmetric and asymmetric encryption. Symmetric encryption uses the same key for both encryption and decryption, meaning the sender and receiver must securely share the same key. Its main advantages are fast encryption/decryption speeds and high efficiency, suitable for processing large amounts of data. Common symmetric encryption algorithms include AES (Advanced Encryption Standard), DES (Data Encryption Standard), and Blowfish. Among these, AES has become the most widely used symmetric encryption standard globally, supporting 128-bit, 192-bit, and 256-bit keys, adopted by many governments and commercial institutions.

AES encrypts data by dividing it into 128-bit blocks and processing through multiple rounds of substitution and permutation to ensure data security. As computer processing power increases, DES, with its 56-bit key, is considered insecure and has been gradually replaced by stronger algorithms like AES and 3DES.

In contrast, asymmetric encryption (also called public key encryption) uses a pair of keys: a public key and a private key. The public key can be distributed openly for encrypting information, while the private key must be kept secret for decrypting information. This approach solves the key distribution problem in symmetric encryption and is especially suitable for open network environments. Bitcoin and other encrypted assets use asymmetric encryption to verify electronic transmissions and ensure security.

Digital Signatures and Transaction Verification

In the blockchain ecosystem, digital signatures are a key mechanism for transaction validation and identity authentication. Based on the principles of asymmetric encryption, they allow users to generate a unique signature that can only be verified by the corresponding public key. This process not only ensures the authenticity of transactions but also provides non-repudiation—the signer cannot deny having signed the transaction later.

Bitcoin introduces an innovative concept called “private key-locked transactions,” which allows for atomic verification of specific private keys during payment execution. This mechanism lays the foundation for developing Bitcoin smart contracts, enabling new protocols to be built directly on Bitcoin. Using elliptic curve digital signature algorithms (ECDSA), the Bitcoin network can verify whether each transaction is initiated by a legitimate holder without exposing the user’s private key. When a user initiates a Bitcoin transaction, they sign the transaction information with their private key, and nodes in the network can verify the signature’s validity using the corresponding public key. This process ensures that only the private key holder can spend their funds, while anyone can verify the legitimacy of the transaction.

Current Market and Future Outlook

As of January 7, 2026, according to Gate market data, the BTC/USDT trading pair has reached a quote of $92,792.2. This price level reflects the current state of the crypto market after fluctuations and highlights Bitcoin’s position as a leading crypto asset. Several leading institutions’ outlook reports for 2026 indicate a cautiously optimistic overall market tone. The core consensus focuses on macroeconomic improvements, the transition of capital structures toward institutionalization, and the deep integration of AI and blockchain.

Notably, firms like a16z are shifting their focus from short-term prices to actual user adoption and product implementation in 2026, emphasizing that the deep integration of AI agents and cryptography will be one of the main themes. The tokenization of stablecoins and real-world assets (RWA) is also considered a significant trend for 2026. Grayscale’s report describes 2026 as “the dawn of the institutional era,” noting that stablecoins are expanding payment boundaries, and RWA is at a tipping point of tokenization.

With technological advances, the crypto field is exploring new cryptographic methods resistant to quantum computing attacks. This development is crucial for ensuring the long-term security of blockchain systems, especially as quantum computers become a reality.

Applications and Challenges

Cryptography’s applications in the digital world are now ubiquitous. From protecting financial information in online transactions to securing email privacy through encryption, cryptography has become the foundation of modern digital life. In the field of encrypted assets, cryptography is the core technology enabling secure, decentralized peer-to-peer transactions. Blockchain technology, as the basis for various digital assets, has expanded cryptography applications from simple transactions to diversified scenarios. Smart contracts, built on cryptographic principles, are decentralized applications that can automatically execute instructions without intermediaries, potentially transforming online privacy and security landscapes and reducing personal data collection and centralization.

Despite continuous advances, cryptography still faces multiple challenges. The development of quantum computing poses a risk to traditional encryption algorithms, prompting researchers to develop quantum-resistant cryptography. Implementation vulnerabilities, such as side-channel attacks and coding errors, can also compromise theoretically secure systems. Key management remains a practical challenge for enterprises and individual users, especially in securely generating, storing, and distributing keys at scale.

From the secret military communications of the Roman Empire using Caesar cipher, to Queen Mary’s complex symbols for plotting conspiracies, to Turing’s “Bombe” machine cracking Enigma—when Bitcoin surpasses $93,000 in January 2026, its underlying elliptic curve encryption still silently and securely guards every transaction. From the mysterious hieroglyphs of ancient Egyptian tombs to the flowing encrypted assets on the blockchain, cryptography has always been the bridge for humans to keep secrets and transmit trust. As AI agents begin to autonomously execute on-chain transactions and trillions of dollars flow through stablecoins, we will realize that the mathematical beauty hidden within complex algorithms is redefining the boundaries of trust in the digital age.