So nearly all the Internet’s “crypto” is really no more than a new kind of password. It is not a magic recipe for money, as it is often touted. Instead, it is a new way to protect old recipes for money, like financial passwords and credit cards.
Perhaps the most basic one is to store your money in a bank. The way banks work now, a bank knows where you keep your money because it keeps a record of each transaction. If you don’t trust them, you can move your money around from account to account, which is somewhat inconvenient but still better than leaving your money at the mercy of some faceless computer in some distant office that might go out of business tomorrow or be robbed by hackers.
But what if you could have an account with your bank that was completely anonymous? You could leave the details of the account—amount and dates—to the bank and its other customers, but you would have no idea who or where they were or how much they had deposited.
That’s safe enough if there are only two people involved: if I know Alice has $1,000 and she wants to send it to Bob every Monday, then I know that if I have $1,000 and I want to send it to
Crypto is a way to protect your trust, and you should use it. Crypto is not a short cut to wealth; it may be the same as any other way of protecting your trust from fraud. But if you are using it well, it can really help protect your trust.
Crypto is not just a safety measure against thieves, however. Crypto is also a device for expressing trust in people who otherwise wouldn’t get it. And that can make the difference between life and death.
The name “crytpo” is a misnomer; it should really be “crypto-currency.” The word currency means that you can exchange it for something else, say, food or a house. But crypto-currency doesn’t work like that: once it’s created, you can’t get rid of it. You can do whatever you want with money; you can use it to buy things or invest in them or give it away. Crypto-currency, on the other hand, is as close as money gets to being an artificial life form: once you’ve created crypto-currency, there is no way to get rid of it.
Crypto-currencies are not digital gold; they’re digital property. If they become widely used, they will eventually have more value than gold. That’s because all major currencies are fiat currencies. Fiat currencies are just pieces of paper made of cotton or linen (or today plastic) that the government says have value because we say they have value. They have no intrinsic value: they are just pieces of paper with a big picture of Uncle Sam on them.
But if crypto-currencies displace fiat currencies as the world’s main source of wealth and income, they will pass over time from having no intrinsic value
Crypto is the art of creating and using things that are hard to trace or take away. It’s the art of making things private, and hard to impersonate. It’s the art of substituting randomness for choice.
The term “crypto” is derived from the Greek word kryptos, which means hidden. When you encrypt something, you hide it—that is, you turn it into something that cannot be seen directly by anyone. The reason to do this is twofold: to keep information private, and to make it possible for people who know how to do so to communicate securely with one another.
The idea of hiding information has been around since antiquity. To hide a message in plain sight, however, is more recent. It was in the 1990s that the idea started spreading through computer science and cryptography research.
In 1995, a group of cryptographers at MIT published a paper called “How to Make a Mint”. In it they described what they called a “secret-sharing scheme”, in which people agree on a number of keys (say, four) and then share them with each other so that only someone knowing all four can reveal the secret shared by all four. This has the effect of making it impossible for an attacker to learn even part of the secret; if he gains knowledge about one key but not the others, he still doesn’t know anything.
The most famous way these days of making such a setup work is known as public-key cryptography—or
A little while back I read a blog post by Ian Grigg called “A review of cryptography” in which he argued that the security of any cryptographic protocol can be broken, so it doesn’t matter what algorithm you use. He was right, but I don’t think he understood why.
The security of any cryptographic protocol is guaranteed only if:
1) the attacker doesn’t know about the private key.
2) the attacker can’t find out about the private key.
3) the attacker can’t derive the private key from anything else.
What Grigg didn’t understand is that those are three independent things: it can be possible for an adversary to make 2 work but not 3. It can be possible for an adversary to make 1 work and 3 not work, although this is rare: you defraud people all the time without knowing their passwords. It’s also rare that an adversary can make 2 not work and 1 work; but it is sometimes possible to break 1 against a weaker form of encryption than you thought you were using. The first two are hard; the last one is usually impossible, because when someone steals your password, they usually get more than just your password; they get your private key as well. What this means is that there are
The paper’s academic authors are all professors at the University of Toronto. That is a very good school, but it does not sound like a place where people make a lot of money by telling other people how to get rich.
The post-graduate school students who become professors there certainly don’t; the median salary in 2012 was $79,000 per year. The median income for families headed by those two groups is even lower; $50,000 per year. In contrast, the median income for families made up of married couples with children earning over $150,000 was $181,000.