Digital Signatures: What Are They and How Do They Work?

Digital Signatures: What Are They and How Do They Work?

Written By
Joy Cunanan
Updated on
August 25, 2023
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The recent COVID-19 pandemic has unequivocally affected businesses of all shapes and sizes across industries all over the world. Quarantines, lockdowns, and self-imposed isolation have led millions of people around the world to start working remotely. This new shift to remote working as a response to the pandemic has sped up the adoption of various digital technologies, and these changes are here to stay.

According to a new McKinsey Global Survey, companies have accelerated the digitisation of their interactions and internal operations by three to four years. Remote working has grown four to five times more than before the pandemic, with Prescient & Strategic Intelligence projecting a rise of 26.6% from 2021 to 2030. 

In order to stay competitive in the constantly evolving digital landscape, businesses are required to adopt new strategies and practices to make their operations smoother and more efficient. One of the ways they have chosen to do this is by automating their document management processes and using both digital and electronic signatures. This new shift to digital solutions — more specifically digital signatures and electronic signatures — is here to stay. Thus it is crucial that we fully understand them.

In this article, we’ll explain the difference between electronic signatures and digital signatures, how digital signatures work, and what makes digital signatures more secure than electronic signatures. 

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What are signatures?

Before we go into what exactly electronic signatures are and their difference from digital signatures, here are a few fundamental characteristics of signatures.

At its core, a signature is used as uniquely personal, undeniable self-identification or physical evidence that the person involved in a contract or agreement is witnessing and certifying the contents of the documents. Put simply, it is a written promise that acts as an anchor of trust and evidence between two parties. 

To learn more about the role of signatures and the implications of signing a document, check out our article ‘​​The Rise of Electronic Signatures in Singapore Amid The COVID-19 Pandemic”, here.

Now that we know the basics of signatures, let’s examine what an electronic signature is.

What are Electronic Signatures?

Just like a traditional wet ink to paper signature, an electronic signature is an acknowledgment that you have read and agreed to the terms provided within a contract. The only difference is its format which is rendered electronically to signify a party’s acceptance of the contract terms. It can also be used to authenticate the party involved. 

Electronic signatures can come in a variety of forms such as 

  • A scanned physical signature
  • A drawn signature on an electronic device
  • Clicking “I agree” to terms and conditions on a website
  • Typing your name at the signature portion of an online form

Although an electronic signature could be constituted by a simple action such as checking a box or clicking a button, generally electronic signatures or visual representations of them will attempt to mirror the appearance of a ‘wet ink’ signature and be represented as a scan of an individual’s ‘wet ink’ signature. 

If you’ve heard of or read about electronic signatures before, chances are you may have also come across the term ‘digital signature’. Upon first glance they may seem very similar, however, they have very distinct features. Let’s go through what a digital signature is to draw the differences.

What are Digital Signatures?

In contrast to electronic signatures, a digital signature is a specific type of signature that is backed by a digital certificate, providing proof of your identity. They are recognized as being a more secure type of electronic signature because they’re cryptographically bound to the signed document and can be verified. 

When you use a digital signature, you use a digital certificate obtained from a trusted third party, the resulting digital signature is virtually impossible to fake. It also provides powerful evidence of signer identity, that the signed document was not altered, and that the signatures are valid.

There are three different classes of digital signature certificates, namely:

Class 1 - These digital signature certificates offer a very basic level of security and should only be used in environments or circumstances where there is a very low risk of data compromise. 

Class 2 - These digital signature certificates are often used for tax documents and authenticate a signer’s identity against a pre-verified database. They are used when the risks of a data compromise are moderate.

Class 3 - These digital signature certificates are considered the most secure and safest of all certificates. They are mainly used in matters of high-security and safety, which can include online trading, e-commerce, or any time there is a large amount of money or highly confidential information involved.

How do Digital Signatures work?

Digital signatures are just as legally binding as traditional signatures since they comply with key standards such as the ESIGN Act of the United States and the US-EU Safe Harbor. But how exactly do they work?

According to Tech Target, digital signatures work through public key cryptography’s two mutually authenticating cryptographic keys. What this means is that signers who create a digital signature use a private key to encrypt any data related to their signature, and the only way to decrypt this data is with the signer’s public key. However, both parties must have a registered digital certificate from an issuing authority to link the signers to their signatures.

The data related to the digital signature provides evidence of the following:

  • The origin of the signature
  • The identity of the signer
  • The status of the signer
  • The signer’s informed consent

In addition to that, a digital signature also confirms that the data has not been changed or tampered with during transit.

This public key cryptography is described as a mathematical scheme for demonstrating the authenticity of digital messages or documents. It can be thought of as a virtual fingerprint that is unique to a person and is used to identify signers and secure data in digital documents. 

What’s the difference between a Digital Signature and an Electronic Signature?

The terms digital signature and electronic signature are sometimes confused or used interchangeably despite their apparent differences. While digital signatures are a form of electronic signature since they are created electronically, not all electronic signatures are digital signatures.

The main difference between an electronic signature and a digital signature is the fact that electronic signatures can be a sound, symbol, or even a process that shows the intent to sign something. This is why an electronic signature can be a stamp, a picture of a handwritten signature, a recorded verbal confirmation, or even just a typed name on the line of a document, whereas a digital signature uses encryption and decryption technology. 

Here is a quick summary of their differences:

Electronic Signature (Legal Concept) - Electronic signatures only show who signed, what was signed, and the intent and consent of the parties.

Digital Signature (Encryption/Decryption Technology) - Digital signatures support electronic signatures. They secure sensitive data, detect tampering efforts, and strengthen signing trust.

What are the benefits of using Digital Signatures?

The main benefit of using digital signatures is the level of security they come with. Companies can ensure that the documents they are signing have not been altered and each signature is legitimate since digitally signed documents are cryptographically bound and secured with a tamper-evident seal. 

Here are a few other benefits you can expect from using digital signatures:

  1. Globally accepted and legally compliant - Digital signatures backed by digital certificates issued by third-party providers help you comply with regulations around the world. 
  1. Time and cost savings - Digital signatures simplify the contract management process and significantly reduce friction and time spent since businesses can easily and quickly access and sign multiple documents in a day.
  1. Less environmental impact - Establishing a system for digital signatures and adopting a contract management platform is more environmentally friendly as it reduces paperwork.
  1. Easier record-keeping for businesses - Digital signatures create an audit trail that makes internal record-keeping easier for businesses. Since everything is recorded and stored digitally, there are fewer opportunities for mistakes or accidents to occur.

Transform your business in our digital era

As the pandemic continues to disrupt our lives, businesses have been led to increasingly conduct business virtually, accelerating existing trends in electronic signatures, remote working, as well as automation. In order to not only survive but successfully grow your business, it's important to embrace this new age of digital transformation. 

As Asia’s leading contract management platform, Lexagle can help your business streamline your contract lifecycle from end to end and optimise your processes as our world gears towards a fully digital future. With Lexagle, you’ll also enjoy more automated features such as contract trackers, better document storage, and digital signing of documents. 

If your business is ready for the next step forward in this digital age, do not hesitate  to contact us for a free demo today. 

Digital Signatures: What Are They and How Do They Work?
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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