Digital signatures and the blockchain technology

by Lumai Mubanga

Signatures in all business transactions represent authenticity of signed documents and transactions. A fake signature draws a line between preservation and loss of capital, funds and trust between partners. How can a distributed system like the blockchain without a central authority to conduct physical Know Your Customers (KYC) venting requirements survive this complicated financial system of the 21^st century? Digital signatures have proved handy and useful, but not without unexpected hurdles. This article examines that in brief.

Blockchain deals with digital documents and any authentication to be done in the system will demand the use of digital authentication mechanisms. As such, all documentation is ‘stamped’ with digital signatures. A digital signature is one of the cryptographic elements required in the implementation of blockchain. Recall that all blockchain users have both private and public keys. Users use private keys to create a digital signature on any digital document to authenticate it. However, since both private and public keys are used simultaneously, recipients use the corresponding public key to verify the private key.

What happens when you make changes to your document? If there was just one bit change in your document, the signatures will not match and will be rendered invalid. However, there is a potential problem with digital signatures.

Efficiency problems

Digital signatures brought with them an efficiency problem. It became increasing expensive to effectively transmit signed digital transactions. This is because there is a digital signature created for every digital document. However, there is an direct relationship between the size of the document and the digital signature. The longer the document, the longer the signature. This increases the size of the document and also effects how much bandwidth is required for its transmission across the internet. Therein lays an efficiency problem. How was this resolved?

Hash Value

Hash value is a technique that was developed to solve the inefficiency challenges introduced by digital signatures.  The hash value is a kind of fixed length finger print generated for each document created. With a fixed sized digital signature, there will be no limit on the size of a digital document created and there would be no bandwidth limitations to worry about. How though does it work?

Some hash value generating algorithms produce a fixed value of say 160 bit size of a fingerprint for a document, regardless of how long the document is. This finger print is given a name – hash value which has similar properties to that of the digital signature. If the document is tempered with, the hash value will not match. So, the document is transmitted with the hash value and the recipient will use the hash value to verify any changes that could have been made to the document at any time before, during or after transmission.