What is the significance of Digital Signature to Blockchain?

The digital signature is a cryptographic technique used to sign a document and verify the signature. It proves that the document was signed by the owner of the signature and not by anyone else. It allows proof of authorship, content integrity, and authenticity of electronic documents, including electronic business transactions and emails.

The digital signature is a type of digital signature which uses encryption to transform the message into an unintelligible format that only the signer can subsequently recover and understand. The receiver uses a cryptographic algorithm to decode the encrypted message, thereby acquiring the corresponding information. Digital signatures are used to prove that a document or electronic document has been signed by the actual author.

How does Digital Signature work in Blockchain?

Let’s say, a company SETH is looking to issue shares via a blockchain-based company. In this case, SETH has to sign a transaction that transfers ownership of the shares. This transaction will be of the form: share data>, signature>, and own sale signature>. The share data is the data being transferred between the owners, while the sale signature acts as proof of ownership. This signature is the company’s private key embedded in the blockchain. A blockchain explorer or a service like Etherscan can be used to check the validity of the transaction. Now, when the share transaction gets propagated on the chain and the blockchain explorer gets the data, they can only see the hash and the signature, but cannot make sense of the data. What the explorer does is that it creates a transcript of the transactions in the chain. The authenticity of the transaction is verified as the transcript shows the transaction has been signed on the chain.

Public Key Infrastructure (PKI) for digital signatures in blockchain

Besides using a digital signature for transferring ownership of shares, it’s also possible to issue an asset like a bond using blockchain technology. In this scenario, a company issues tokens and creates a blockchain-based asset, where the tokens represent ownership of the asset. Now, these tokens can be signed using a digital signature. The signer is the asset issuer and when the transaction is completed, the blockchain shows a transaction of token data>, signature>, and own signature>. The data is the asset information and the signature is the signer’s public key. The data and signatures are stored in the blockchain. In this way, the asset issuer or the signer can issue asset-backed tokens that can be used for financial transactions.

Another use case for using digital signatures in the blockchain is to issue a smart contract. A contract can be a legally binding agreement between two or more parties. A smart contract is a computer code that can facilitate, verify, or enforce the negotiation or performance of a contract. It’s possible to create a contract on a blockchain with the help of a digital signature. When the transaction gets verified, it shows smart contract data>, signature>, and own signature>. The data is the smart contract information and the signature is the blockchain public key of the signer. The data and signature are stored in the blockchain so that the contract information can never be altered or deleted.

Conclusion

Digital signatures have been a part of many industries as they are very helpful in confirming the identities of users. However, with the rise of blockchain in the ecosystem, digital signatures have now become more relevant. Now, it’s possible to issue assets, create decentralized organizations, and verify the authenticity of transactions through digital signatures. It’s important to note that digital signatures on the blockchain are not the same as encryption signatures. Instead, they are a unique way of confirming transactions and tracking asset ownership.

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