Digital Signatures 101: How They Work and Why You Need Them

Written by: Axay Vekariya | 04 Augest

Learn what digital signatures are, how they use public key cryptography to ensure security and authenticity, and what are some common use cases and examples of digital signatures in different industries.

How Digital Signatures Work and Why You Should Use Them Digital signatures are electronic signatures that use a mathematical algorithm to validate the authenticity and integrity of a message, such as an email, a credit card transaction, or a digital document. They create a virtual fingerprint unique to a person or entity and are used to identify users and protect the information in digital messages or documents.

In this article, we will explain how digital signatures work, why they are more secure than other electronic signatures, and some common uses and examples of digital signatures in different industries.

How Digital Signatures Work?

Digital signatures use public key infrastructure (PKI), which is considered the gold standard for digital identity authentication and encryption. PKI relies on using two related keys, a public key and a private key, that together create a key pair to encrypt and decrypt a message using strong public key cryptography algorithms.

The public key is shared with anyone who needs to verify the sender’s identity and the integrity of the message. The private key is kept secret by the sender and is used to generate the digital signature. The private key is also linked to a digital certificate that contains information about the sender’s identity and is issued by a trusted third party called a certificate authority (CA).

Here is how sending a digital signature works:

The sender selects the file to be digitally signed in the document platform or application.
The sender’s computer calculates the unique hash value of the file content.
This hash value is encrypted with the sender’s private key to create the digital signature.
The original file, digital signature, and digital certificate are sent to the receiver.
The receiver uses the associated document application, which identifies that the file has been digitally signed.
The receiver’s computer then decrypts the digital signature using the sender’s public key, which is obtained from the digital certificate.
The receiver’s computer also verifies that the digital certificate is valid and issued by a trusted CA.
The receiver’s computer then calculates the hash value of the file content and compares it with the decrypted hash value from the digital signature. The file has not been altered if they match and the sender’s identity is authentic.

Why You Should Use Digital Signatures?

Digital signatures offer several benefits over other forms of electronic signatures, such as:

They provide strong security and assurance that the message has not been tampered with and that the sender’s identity is verified.
They are legally binding and compliant with various regulations and standards worldwide, such as eIDAS in Europe, ESIGN in the US, and ZertES in Switzerland.
They increase the efficiency and convenience of online transactions by eliminating the need for paper documents, physical signatures, and manual verification processes.
They enhance the trust and transparency between customers, business partners, and vendors by reducing the risk of fraud, errors, and disputes.

Common Uses and Examples of Digital Signatures

Today, digital signatures are commonly used for a variety of different online documents in order to improve the efficiency and security of critical business transactions that are now paperless, including:

Contracts and legal documents: Digital signatures are ideal for any legal document requiring an authenticated signature by one or more parties and assurance that the document has not been modified. Examples include employment contracts, non-disclosure agreements, lease agreements, etc.
Sales agreements: By digitally signing contracts and sales agreements, both the seller and the buyer’s identities are authenticated, and both parties have peace of mind that the signatures are legally binding and that the terms and conditions of the agreement have not been altered. Examples include purchase orders, invoices, receipts, etc.
Financial documents: Financial departments digitally sign invoices so that customers trust the payment request is coming from the proper seller, not a bad actor trying to scam the buyer into sending payment to a fraudulent account. Examples include bank statements, tax returns, loan applications, etc.
Healthcare data: Data privacy is paramount for patient records and research data in the healthcare industry. Digital signatures ensure this sensitive information is not altered when shared between consenting parties. Examples include medical reports, prescriptions, consent forms, etc.
Government forms: Federal, state, and local government agencies have stricter guidelines and regulations than many private-sector businesses. From approving permits to clocking in on a timesheet, digital signatures can streamline productivity by ensuring the right employee is involved in the appropriate approvals. Examples include passport applications, voter registration forms, payroll documents, etc.
Shipping documents: For manufacturers, ensuring cargo manifests or bills of lading are always accurate helps reduce costly shipping errors. Yet, physical paperwork is cumbersome, isn’t always easily accessed in transit, and can be lost. By digitally signing shipping documents, shippers and receivers can access a file quickly, verify that the signature is current, and confirm that no tampering has occurred.
Examples include delivery notes, customs declarations, packing lists, etc.

Conclusion

As paperless, online interactions are used more widely, digital signatures can help you secure and safeguard the integrity of your data. Understanding and using digital signatures can better protect your information, documents, and transactions. Explore our website for a plethora of exciting technology-related articles. Additionally, feel free to reach out to us for all your web development and app development needs. We offer comprehensive services to bring your ideas to life and deliver exceptional digital solutions.