Crypto Midterm

Encryption

Converting plaintext into unreadable characters with a key

Decryption

Converting unreadable characters into plaintext with a key

Encryption is _____________

a 2-way function

Hashing

Converting plaintext of any length into a short code

Hashing is _____________

a 1-way function

Can you recover plaintext from a hash?

No

3 Fundamental issues of a currency system?

1. How to buy original art?

2. How to sell art from collection?

3. How to detect stolen art?

In the U.S., our current currency system is......

Fiat

Barter System example

Offering chickens for a yearly newspaper subscription

What is a problem with the Barter System example?

If the newspaper editor doesn't need chicken, but bread instead

What is a solution to the Barter System problem?

Find something that is valuable to everyone (gold)

Why choose gold as a solution to the Barter System?

It's rare, but not too rare

Gold Standard

A monetary system where a country's currency or paper money has value directly linked to gold

What does the fixed price for gold determine?

The value of the currency

If the U.S. sets the price of gold at $500/ounce, the value of the dollar would be...

1/500th of an ounce of gold

Do we currently follow the gold standard?

No, we follow the Fiat system

Fiat System

Monetary system where the value of currency isn't based on a physical commodity, but fluctuates dynamically against other currencies on the foreign-exchange market

Fiat is derived from what word?

Latin fieri- which means an arbitrary act or decree

The value of fiat currencies is based on what?

The fact that they're legal tender by government decree

Is the gold standard currently used by any government?

No

What is officially crowned as the world's reserve currency?

U.S. dollar, backed by the world's largest gold reserves

What WWII agreement crowned the U.S. dollar as the world's reserve currency?

Bretton Woods Agreement

In the U.S., which president ended the Bretton Woods system & began the era of free floating fiat currencies?

Nixon

In a banking system, what role does the bank act as?

A middleman trusted by both parties

What if there is an alternate middleman, instead of a bank, that is fast, automated, transparent, and free from hacking/tampering?

Block chain

Bitcoin

1st cryptocurrency developed based on blockchain technology

Who invented Bitcoin?

Unknown group/person by the name Satoshi Nakamoto

What is a block chain?

A unchangeable, distributed, decentralized ledger in chronological order

What does a block chain do?

Construct a valid block from encrypted transaction data within a certain time period

What is a ledger?

A record of transactions in chronological order

What if the ledger is tampered?

If it's not accurate, value decreases

What must be done for a valid transaction to take place in a bank?

It needs an entry/record in the bank's ledger

T/F: Every institution has their own ledger

True

Block Chain

Public ledger where blocks sit one after another chronologically

Every block contains what?

Encrypted data of all transactions from the past 10 minutes

All data in a block is public to the world, but it's encrypted. In order to read it, what do you need?

A private key

When looking at the block chain, everyone can see the _________, but not the ____________

transaction; sender or receiver

Why are there two output amounts on a block chain transaction log?

The total subtracts a network fee which is used to pay miners for verifying and confirming the transaction

Can you change a block on the block chain?

No

Blocks exist in the chain one after another in chronological order, which means.....

every block knows which blocks existed before it

Block chain is a distributed & decentralized system, which means...

The same data exists in thousands of computers around the world

How do you think block chain might change the future of banking?

1. No middleman (bank)

2. Low network fee

3. Decentralized & transparent

4. Very fast

Transactions that take place in the block chain network are done through what type of currency?

cryptocurrency

4 Examples of Cryptocurrencies

Bitcoin, Litecoin, Ethereum, Monero

Do exchange values of cryptocurrencies fluctuate like fiat currencies?

Yes, based on how many people use it

What is the first implementation of block chain technology?

Bitcoin

Altcoins

alternative cryptocurrencies launched after bitcoin's success

5 Altcoin examples

Ethereum, ripple, zcash, monero, dash

All existing fiat currencies are controlled by who?

The government- federal bank

What happens when governments start publishing a ton of bank notes?

Inflation

What is the maximum number of bitcoin to be mined?

21 million (so no inflation)

How long does it take to create/mine bitcoin?

10 minutes

What does Bitcoin use as its cryptographic hash algorithm?

SHA-256

Miners

People who solve cryptographic puzzles using computational resources

What is the concept behind Bitcoin?

Proof of Work

Cryptographic puzzle difficulty level

5 leading 0s (00000) indicate how hard it is to solve the puzzle

How do miners solve the puzzle?

By finding a cryptographic hash that matches the puzzle pattern through combining encrypted transaction data, hash of previous block, and random nonce

Proof of Work

Finding the block hash using computational resources

Merkle Root

32-byte hash that represents a summary of all transaction data

Merkle Tree

"Binary hash tree" - Each parent node contains the hash of its child nodes, and each leaf node contains the cryptographic hash of its single data node.

Advantages of a Merkle Tree

• Tamper proof

• Uses fewer resources

• Verifies a transaction

If Alice owes Bob 1BTC for a service, what does she use to make the transfer?

A bitcoin wallet

What triggers Alice's transaction into entering the peer-to-peer block chain network?

When Alice triggers transaction of 1 BTC to Bob's public key

What two keys does Alice need to set up a transfer to Bob on the bitcoin network?

Her own private key & Bob's public key

What kind of network is the Bitcoin Network?

Peer-to-peer

The Bitcoin Network steps

1. New transactions broadcast to all nodes

2. Each node collects new transactions into a block

3. Each node does proof-of-work for its block

4. When proof-of-work is found, node broadcasts the block to all nodes

5. Nodes accept block if all transactions are valid

6. Nodes accept block by working on creating the next block using the accepted block hash as the previous hash

What is used to encrypt/decrypt data?

A key

What is an encryption key?

A large random # known only to the sender/recipient

What happens if anyone other than the sender/recipient knows the value of a secret key?

They can decrypt an encrypted document and breach confidentiality

Encryption is a _____________ function

two-way

Disadvantage of encrytion

It relies on the secret of key

What are the two types of encryption?

symmetric and asymmetric

In symmetric encryption, there is ___________ key

one shared/secret

In asymmetric encryption, there is ________________ key

a pair of keys: private & public

T/F: Private & public keys are mathematically linked together

True

Can you derive the private key from the public key?

NO, it's mathematically impossible

Which key is used to encrypt in asymmetric encryption?

Recipient's public key

Which key is used to sign something in asymmetric digital signature?

Sender's private key

Encryption is used for...

Confidentiality

Digital Signatures are used for...

Authentication & Nonrepudiation

HTTPS port

443

2 steps of the HTTPS protocol

1. Handshake

2. Data transmission

Once a client & server agree to use TLS, how do they negotiate a connection?

By using a handshake to agree on parameters required for a secure connection

Once the handshake concludes, what begins?

Secure data transmission

How are SSL & TLS different?

SSL is the predecessor to TLS

How does SSL/TLS verify the identity of communicating parties?

asymmetric (public-key) cryptography, typically required on the server

After successful authentication with SSL/TLS, what type of cryptography is used to encrypt the data?

symmetric key cryptography

Is symmetric or asymmetric key cryptography faster?

symmetric

SSL/TLS handshaking happens with what kind of cryptography?

with asymmetric cryptography

SSL/TLS secure data transmission happens with what kind of cryptography?

with symmetric cryptography

What kind of cryptography does SSL/TLS use?

Both asymmetric & symmetric

Client hello message

When a client connects to a TLS-enabled server to request a secure connection, presenting a list of supported cipher suites

Cipher suite

A combination of encryption and key exchange algorithms used to negotiate security settings

T/F: Different versions of different client browsers support different cipher suites

True

A server's Digital certificate contains what 3 things?

1. Server name

2. Trusted CA

3. Server's public key

Top three Certificate Authorities (CAs)

Comodo, Symantec, GoDaddy

Server hello message

Server picks the strongest cipher suite it supports and notifies the client

Digital certificates are specified by which standard?

X.509

Handshake steps

1. Client sends hello message to server

2. Server sends hello message to client

3. Server sends digital certificate as its identification to client

4. Client confirms server certificate is valid

5. Client sends Pre-Master secret key to server

6. Client & server both generate a symmetric encryption key from the shared PMS

What is the Pre-Master Secret key eventually going to be used for?

Generating a symmetric encryption key