Digital Signature

Finance & Accounting

A digital signature is a mathematical technique used to validate the authenticity and integrity of a message, software or digital document. It's the digital equivalent of a handwritten signature or stamped seal, but it offers far more inherent security. A digital signature is intended to solve the problem of tampering and impersonation in digital communications. Digital signatures can provide evidence of origin, identity and status of electronic documents, transactions or digital messages. Signers can also use them to acknowledge informed consent. In many countries, including the United States, digital signatures are considered legally binding in the same way as traditional handwritten document signatures.

Benefits of digital signatures

Security is the main benefit of digital signatures. Security capabilities embedded in digital signatures ensure a document is not altered and signatures are legitimate. Security features and methods used in digital signatures include the following:

Personal identification numbers (PINs), passwords and codes. Used to authenticate and verify a signer's identity and approve their signature. Email, username and password are the most common methods used.
Asymmetric cryptography. Employs a public key algorithm that includes private and public key encryption and authentication.
Checksum. A long string of letters and numbers that represents the sum of the correct digits in a piece of digital data, against which comparisons can be made to detect errors or changes. A checksum acts as a data fingerprint.
Cyclic redundancy check (CRC). An error-detecting code and verification feature used in digital networks and storage devices to detect changes to raw data.
Certificate authority (CA) validation. CAs issue digital signatures and act as trusted third parties by accepting, authenticating, issuing and maintaining digital certificates. The use of CAs helps avoid the creation of fake digital certificates.
Trust service provider (TSP) validation. A TSP is a person or legal entity that performs validation of a digital signature on a company's behalf and offers signature validation reports.

Classes and types of digital signatures

Class 1. Cannot be used for legal business documents as they are validated based only on an email ID and username. Class 1 signatures provide a basic level of security and are used in environments with a low risk of data compromise.

Class 2. Often used for electronic filing (e-filing) of tax documents, including income tax returns and goods and services tax (GST) returns. Class 2 digital signatures authenticate a signer's identity against a pre-verified database. Class 2 digital signatures are used in environments where the risks and consequences of data compromise are moderate.

Class 3. The highest level of digital signatures, Class 3 signatures require a person or organization to present in front of a certifying authority to prove their identity before signing. Class 3 digital signatures are used for e-auctions, e-tendering, e-ticketing, court filings and in other environments where threats to data or the consequences of a security failure are high.