The ways we sign and secure documents are undergoing significant transformations today. In particular, the need for a more secure method of authenticating digital documents has led to the rise of digital signatures.
But what exactly is a digital signature, and how does it differ from an electronic signature? Understanding these nuances is crucial as we increasingly conduct business, and sign legal documents, online.
We’ll answer all those questions, and more, in this guide. You’ll learn what a digital signature is, how it works, and what technology powers its legal validity. We’ll also examine some important use cases when it’s necessary to use a digital signature rather than an ordinary electronic one.
Whether you’re in legal, tech, healthcare, or any sector that relies on signed documents, this guide will help you navigate the ins and outs of digital signatures. Let’s dive in!
What is a digital signature?
A digital signature is a special type of electronic signature that authenticates the signer’s identity. A digital signature offers a much greater level of security in contrast to a standard electronic signature, which can be as simple as a name typed at the end of an email.
Due to these tighter security measures, digital signatures are considered legally binding in many jurisdictions, under legislation like the Electronic Signatures in Global and National Commerce Act (eSIGN Act) and the Uniform Electronic Transactions Act (UETA) in the United States.
Key features of digital signatures include the following:
- Authentication: Ensures that the document has been signed by the private key of the actual sender.
- Integrity: Confirms that the document has not been altered in transit.
- Non-repudiation: Provides proof of the origin or delivery of the document, making it difficult for the signer to deny the authenticity of the signature later.
In short, digital signatures provide an extra layer of trust by ensuring that the document hasn’t been altered after being digitally signed. In a world where data breaches and identity theft are constant threats, using a digital signature adds an important layer of protection.
Digital signatures have evolved significantly since the advent of digital technology. Initially, digital forms of signing were cumbersome and not universally accepted. However, advances in cryptographic methods and the advent of public key infrastructure (PKI) have made digital signatures the modern standard in secure signing, as we’ll see in the section below.
How does a digital signature work?
A digital signature works by employing a set of algorithms to both create a unique signature and verify it. When you digitally sign a document, the signing software generates a hash (or mathematical representation) of the document. This hash is then encrypted using your private key, forming the digital signature.
When someone opens the document, the software uses the associated public key to decrypt the hash. If it matches the hash generated from the document, the signature is verified, ensuring the document hasn’t been tampered with.
The 5 steps to digitally signing a document:
- Document preparation: Initially, the document to be digitally signed is prepared. This could be any electronic document like a PDF, Word file, or an email.
- Hash creation: A unique hash (or “digest”) of the document is created using a hashing algorithm. This ensures that the document has not been altered, providing a layer of integrity.
- Signing the hash with a private key: The hash is then encrypted using the sender’s private key. This encrypted hash serves as the digital signature for the document.
- Attachment: The digital signature is then attached to the document, or sent alongside it, as evidence of the document’s origin and integrity.
- Verification by the recipient: Upon receiving the digitally signed document, the receiver can decrypt the hash using the sender’s public key. If it matches the document’s hash, it proves the signature is valid and the document is intact.
The importance of public key infrastructure (PKI)
Digital signatures rely heavily on public key infrastructure (PKI), a framework that manages digital keys and certificates. PKI involves a pair of keys: a public key, which everyone can see, and a private key, which remains confidential. The interaction between these keys is what makes digital signatures secure and reliable.
What are the requirements for a digital signature?
The requirements for a digital signature can vary based on the jurisdiction, and on the type of document being signed.
However, the general requirements for a digital signature often include the following:
- Certificate authority (CA)
- Private key
- Electronic signing
Let’s take a look at each of these requirements in greater detail.
Certificate authority (CA)
You’ll need a digital certificate from a reputable certificate authority (CA) to authenticate your identity. Certificate authorities are trusted organizations that issue digital certificates. These certificates serve to validate the identity of the individual or entity requesting the digital signature.
A unique private key is essential for creating the digital signature. This key should be securely stored and only accessible by the signer. Your private key is akin to your digital fingerprint. It’s used to create the digital signature, and should be stored in a secure environment (like a private hard drive) to prevent unauthorized access.
Digital signatures can only be applied to electronic documents. The document to be signed must be in electronic form, such as a PDF, a Word document, or a document on a contract lifecycle management (CLM) platform that includes digital signature functionality. Make sure the document you intend to sign is in a format that supports digital signatures.
Digital signature use cases and examples
Today, digital signatures are widely used across a diverse array of industries and sectors.
Common digital signature use cases include the following:
- Legal documents
- Government forms
- Healthcare records
- Financial transactions
- Educational forms
- Technological agreements
Let’s take a closer look at each of these use cases.
When it comes to legal agreements, contracts, and other sensitive documents, digital signatures offer an extra layer of security. They not only confirm the identity of the signer but also ensure that the document remains unchanged post-signing. Use cases in legal departments include:
- Non-disclosure agreements (NDAs): Speeding up the signing process for documents protecting sensitive information.
- Court filings: Providing a secure and traceable method for submitting electronic documents to court systems.
In recent years, governmental organizations have also started embracing digital signatures. For example, the European Union has adopted digital signatures in various official documents, streamlining administrative procedures and enhancing document integrity. Use cases in government include:
- Tax filings: Enabling secure and efficient electronic submission of tax forms.
- Voter registration: Enhancing the integrity and security of the electoral process by allowing authenticated digital sign-ups.
In healthcare, digital signatures are invaluable for ensuring the confidentiality and integrity of electronic health records. Record retention and the audit trail features commonly found in digital signature solutions are crucial for regulatory compliance and patient confidentiality. Use cases in healthcare include:
- Patient consent forms: Enabling patients to give legal consent for medical procedures via electronic documents.
- Prescription approvals: Enhancing security around prescriptions by verifying the identity of the prescribing physician.
The finance sector has witnessed a surge in the use of digital signatures for activities ranging from online banking to stock trading. Features like non-repudiation and integrity make digital signatures invaluable for financial transactions and auditing. Use cases in finance include:
- Loan agreements: Digital signatures speed up the loan approval process by allowing secure and quick signing of agreements.
- Financial audits: The traceability feature of digital signatures helps auditors confirm the authenticity of financial documents.
Digital signatures are becoming increasingly popular in educational institutions for administrative paperwork, report cards, and even in e-learning platforms to verify the authenticity of certificates. Use cases in education include:
- Transcripts and diplomas: Ensuring that these critical documents are authentic and haven’t been altered post-issuance.
- Online exams: Digital signatures can help authenticate student identities during online examinations.
In the tech industry, digital signatures are used in software distribution, data verification, and in creating secure communication channels. Use cases in technology include:
- Software licensing: Digital signatures help authenticate the source of the software, ensuring it hasn’t been tampered with.
- Data security: They also play a vital role in ensuring the integrity of data transfers over the internet.
As all these examples demonstrate, digital signatures are revolutionizing the way we handle electronic transactions and document verification across industries, making processes not only more efficient but also more secure. So let’s discover how to create your own!
How to create a digital signature
Creating a digital signature involves a series of steps designed to ensure the highest possible level of security and authentication.
Here’s a bullet-point list to give you a high-level overview of digitally signing a document:
- Choose a certificate authority (CA)
- Generate a private and public key
- Attach the digital certificate to the document
- Digitally sign the document using your private key
Now let’s walk step-by-step through each action in this list.
1. Choose a certificate authority (CA)
The first step in creating a digital signature is to select a reliable certificate authority. These organizations validate your identity and issue a digital certificate, which you’ll need for the digital signing process.
2. Generate a private and public key
Once you have your digital certificate, you’ll need to generate a pair of cryptographic keys: a public key and a private key. The public key will be visible to anyone who receives a document you’ve digitally signed, while the private key remains confidential. Make sure you save both keys in a secure location!
3. Attach the digital certificate to the document
Before you can sign, you’ll need to attach your digital certificate to the electronic document you intend to sign. This certificate contains your public key and other information that helps authenticate your identity. Different e-signature providers have different ways of attaching certificates to documents, so check your provider’s help docs for more details.
4. Digitally sign the document using your private key
Finally, using your private key, you can digitally sign the document. Most digital signature software will prompt you to input a secure PIN or password before allowing you to complete the signing process.
Once you’ve followed these steps, you’ll have created your very own secure, unique, legally binding digital signature, and attached it to a document.
If this process seems a bit complicated, the good news is that some contract management platforms will handle all these steps for you automatically. You may want to check your software’s documentation for details on how the platform handles digital signatures.
Do you need a digital signature, or is an electronic signature enough?
You don’t need a digital signature in many situations, especially for everyday transactions or informal agreements. An ordinary electronic signature is legally binding in many cases – and it can be as simple as your name typed at the end of an email.
In general, digital signatures are much more expensive and cumbersome than many other types of electronic signatures – and in most business scenarios, especially for small and medium businesses (SMBs), ordinary e-signatures are more than enough.
However, there are some important use cases where a digital signature is necessary, such as:
- Significant legal documents: Certain documents require a higher level of authentication, like wills and trusts, contracts involving large sums of money, and real estate transactions.
- International agreements: If you’re dealing with parties in different countries, a digital signature may be required to meet varying legal standards across jurisdictions.
- Contracts containing sensitive information: For documents that contain confidential or sensitive data, a digital signature offers added layers of security and auditability.
While electronic signatures are convenient, it’s important to consider the level of security and legal recognition your document needs. Evaluating the specific requirements of your transaction will guide you in choosing between a digital signature vs. an electronic signature.
Additional considerations with digital signatures
When using digital signatures, there are several important factors to consider, beyond just the mechanics of signing. Here are some areas that warrant special attention:
- Enhanced security features
- International transactions
- Varying local regulations
Let’s take a look at each of these considerations in detail, and see some examples of how they play out in practical terms.
Enhanced security features
Digital signatures are designed to provide a high level of security, but it’s crucial to understand the features that make them secure.
- IP address tracking: Some providers offer IP address tracking as a feature, which adds an extra layer of verification to the signing process. Some contract management software platforms also automatically generate an audit trail, which logs every interaction with a document before and after signing.
- Multi-factor authentication (MFA): This provides an additional layer of security by requiring more than one method of authentication – for instance, requiring signers to type in a code that’s texted to their phone in addition to entering a username and password.
Example: A business contract can be set up to require a digital signature, IP address verification, and multi-factor authentication, ensuring that only the intended recipient can sign it. The contract can also be packaged with an audit trail, so signing intent can be proven in court.
The use of digital signatures can significantly influence international transactions by ensuring the authenticity and integrity of documents across borders.
- Cross-border recognition: Many countries have laws that recognize digital signatures, making international business more streamlined. However, exact requirements often vary by country.
- Data residency: Be mindful of where your data is being stored, as different countries have different data protection laws. Depending on where you and the other parties are headquartered, you may want to specify that data is stored in a particular country.
Example: An American company signing a contract with a European partner will need to comply with both American and European digital signature laws, as outlined below. They might also want to stipulate that all their private data must be stored on servers in the United States.
Varying local regulations
Legal requirements for digital signatures can vary widely from one jurisdiction to another, making it important to be aware of local, national, and international laws, including the following:
- UETA and the eSIGN Act: In the United States, the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act provide the legal framework for most types of electronic signatures.
- eIDAS: As its name suggests, the European Union’s Electronic Identification, Authentication and Trust Services Act specifies requirements for electronic identification and trust services for electronic transactions.
- PIPEDA: Canada’s Personal Information Protection and Electronic Documents Act provides its own set of rules around electronic signature formats.
Example: A multinational corporation may need to comply with UETA in the United States, eIDAS in the European Union, and PIPEDA in Canada, depending on where they operate.
By factoring these additional aspects of the signing process into your decision framework, you can navigate the complexities of digital signatures with more confidence and insight.
Conclusion: Do you actually need a digital signature?
As we’ve seen throughout this guide, digital signatures offer a secure and legally binding way to authenticate electronic documents. Whether you’re conducting international business, complying with strict legal requirements, or simply seeking a high level of security, digital signatures have a range of applications. However, they may not always be necessary; electronic signatures are often sufficient for less sensitive transactions.
Understanding the types of signatures, the technology involved, and the legal framework can help you make an informed decision. Choose your digital signature provider carefully, taking into consideration factors such as security features and laws in different jurisdictions, and you’ll soon be signing documents like a pro – with digital signatures or any type of e-signing.