What is a digital signature?
Authorizing bitcoin transactions to prove ownership
Digital signatures are used to authorize bitcoin transactions and are created from private keys and transaction data.
Bitcoin exists as transaction records on a public financial ledger, called a blockchain. To have your transaction added to that ledger you must mathematically prove that you are the rightful owner of the bitcoin – something which can only be done using private keys.
Control of private keys is effectively how you own bitcoin, and therefore keeping them safe, secret, and secure is paramount. The way you authorize a transaction on a public blockchain, while keeping your private keys private is with a digital signature.
A digital signature is a cryptographic code that can only be created using the sender’s private keys, but which can be validated by anyone on the Bitcoin network using the public key. Digital signatures are kinda like signing a paper check (or “cheque” for the non-Americans):
The key difference is that with digital signatures the private key itself is never revealed to anyone else.
Digital signatures can’t be faked because they’re generated using a cryptographic process that requires the unique private key of the signer that matches the public key. Without access to the private key, it’s computationally impossible for anyone to create a matching digital signature, meaning no one can spend bitcoin unless they control the private keys.
When taking self-custody of your bitcoin, you control the private keys, and your wallet software uses them to create digital signatures for your transactions. If you use a custodial wallet app, like Strike, the app will manage the private keys and create signatures on your behalf.
Digital signatures are handled by your wallet’s software. When you want to make a transaction, your wallet will construct the transaction by selecting the correct private key to generate the signature. Here’s the basics of how it works:
Digital signatures ensure the authenticity and integrity of a transaction by leveraging the unique relationship between a private and public key. This cryptographic process guarantees that only the holder of the private key could have created the signature, making it a secure and reliable way of authenticating ownership without revealing any sensitive information.
© 2024 NMLS ID 1902919 (Zap Solutions, Inc.)