If you’ve closed on a mortgage, applied for a loan, signed a contract, or shopped for groceries, you’ve likely used an electronic signature. Digital signatures take ID security to a new level, adding an extra layer of encryption. Conducting financial transactions over the internet without digital signatures is difficult if not outright impossible, and you should get to know what they are, how they work, and what precautions to take when using them.
What Is a Digital Signature?
An electronic signature has two main parts: the signer’s intent to sign the document and a document that is verifiable as being signed. Digital signatures link the signer and the document by embedding a digital code, like a fingerprint, into the document. When signed, the person signing must have a digital certificate, which is an ID code.
Digital certificates are issued by certification authorities, trusted third-party organizations. They provide two digital keys for each certificate: one public and one private key. The person who is signing can give the public key to the originator of the document and use the private key to sign it; these keys are electronically matched up and verified.
The digital certificate is linked to the specific organization issuing the document to be signed and is valid only for a certain amount of time. The technology that makes this capability possible is called Public Key Infrastructure, or PKI. If the public key and private key do not match, the document originator will know the signature is fraudulent. With their exceptional safety, digital signatures are especially useful for financial transactions.
How Do Digital Signatures Work?
Each digital signature consists of a complex code created by a computer for data encryption. If an email document gets signed digitally, first the signer opens the document file and clicks “sign.” The message is encrypted by the signer’s computer or device to include the private key that creates the digital signature.
The signer next sends the email to the person who needs to receive the signed document and, with it, the encrypted digital signature. The application on the recipient’s computer decrypts the digital signature using the public key and matches the public and private key to make sure they belong to the same digital certificate.
Are Digital Signatures Legal and Enforceable?
In 2000, the United States passed the Electronic Signatures in Global and National Commerce Act (ESIGN), and the European Union passed a similar provision in 1999. These acts made an electronic signature or digital signature legally binding, just like a signature on a paper document.
The technology, along with the regulations that apply to it, is constantly evolving, and encryption security is improving. Various countries and individual industries have specific compliance standards that must be met, including the banking system.
What Safety Precautions Should You Take?
Digital signatures are extremely secure. Their entire purpose is to provide extreme security while signing confidential or sensitive documents. However, to maintain this level of security, it pays to keep certain precautions in mind such as the following:
- Use a secure email account that is not accessible by any other individual, such as a shared work account.
- When creating passwords, use unique combinations of letters, numbers, and symbols that are hard to guess.
- Do not send or receive digital signatures over a public internet connection, and make sure private Wi-Fi networks are encrypted.
- When signing a document, make sure that the originator is using a reputable certificate authority using the PKI protocol.
- Make sure that the application you are using to sign a document is compliant with e-signature laws.
- When multiple signatures are required, use a digital signature application that applies encryption to each signature as it is added, with an accurate time stamp, instead of encrypting all signatures as a group.
- Check the vendor’s cloud storage security protocols.
When you’re doing business in today’s global economy, digital signatures are vital to transmitting confidential information, particularly in the banking industry. They are safe, legal, and constantly improving their level of encryption and security. Still, you want to make sure your digital certificate provider and signature application are as compliant, reputable, and secure as they can be before putting your name and money on the line.