Classical cryptography

Patrick McConnell

This chapter describes some of the key concepts of classical cryptography as they relate to digital money and operational risk. Cryptography is a subdiscipline of information theory as it is about adding information to information about money to obscure it – for example, to disguise its contents so that critical information cannot be read, or to sign it so that its source cannot be properly identified. Cryptography is a discipline that is relatively simple in concept but can be excruciatingly difficult in detail. The development of high-performance computers and telecommunications has advanced the discipline immeasurably as it allows complicated mathematical algorithms to be developed to obscure and sign information that is near to impossible to decrypt.

The main body of the chapter is designed to explain the concepts in a way that, without dumbing down, a manager or board member can understand and, importantly, relate to how their businesses must be managed in the future. Going forward, an understanding of the concepts of cryptography will be critical to understanding the operational risks that firms are running in managing digital money. The approach in this chapter is not