What is a Digital Signature? A Complete Guide For Indian Businesses

Paper-based signatures simply can’t keep up with the speed and efficiency required in the modern world. Managing physical documents takes up time and resources—from printing and scanning to storing and mailing. This slows things down, especially when contracts need to be signed quickly across multiple locations.

And let’s not forget security. Physical documents are prone to tampering, loss, or unauthorized access. For businesses handling sensitive agreements, and contracts, a secure, efficient, and legally recognized signing solution is essential. This is where digital signatures come into the picture. 

But what is a digital signature and how it works? In this blog, we uncover exactly that and much more. Why wait, let’s get started.

What is a digital signature?

Digital signatures are cryptographic security tools that provide a secure, verifiable way of signing electronic documents. They work through advanced mathematical algorithms that create a unique encrypted code specific to the document and the signer’s identity.

Now, is it the same as an eSign? Actually no. eSign or eSignatures are a form of digital signature that refers to any digital method used to signify agreement or consent to a document or contract. This can include typing your name, pasting a scanned signature, or clicking an ‘I agree’ button.

With digital signatures, the technology goes beyond simply replicating a handwritten signature—each digital signature contains verified information about the signer’s identity, the exact time of signing, and a cryptographic hash of the document content. This creates an audit trail that proves who signed the document, and when they signed it, and verifies that no changes were made after signing. 

The technology complies with international security standards and regulatory requirements, making digital signatures legally binding for most business purposes.

Importance of digital signatures for businesses

Whether you’re closing a business deal, signing employee contracts, or filing legal documents, the need for a secure, efficient signing solution has never been greater. Below we bring some reasons why digital signatures enjoy so much importance in the digital world—

• Enhancing document security and authenticity

Digital signatures, through advanced cryptographic techniques, represent a solid solution to modern businesses’ document security challenges. 

When a document is digitally signed, it receives an encrypted seal that verifies its origin and ensures its integrity. Any subsequent attempts to modify the document will immediately invalidate the signature, alerting users to potential tampering. This multi-layered verification process provides businesses with a foolproof method of protecting sensitive information.

• Streamlining workflow and reducing paperwork

Businesses and individuals can now sign and validate documents in minutes, from anywhere, breaking down geographical barriers and eliminating the need for physical document movement. 

This significantly reduces administrative overhead, accelerates decision-making processes, and creates a more efficient organizational workflow.

• Legal validity and compliance in India

The Information Technology Act of 2000 provides digital signatures the same legal standing as traditional handwritten signatures. Government departments, financial institutions, and enterprises across various sectors now readily accept digitally signed documents.

• Improved customer experience and convenience

Individuals can now complete crucial processes like opening bank accounts, signing insurance policies, or executing real estate transactions from the comfort of their homes or offices. This technology is particularly beneficial in a diverse country like India, where customers span different geographical locations and technological comfort levels.

• Environmental impact and sustainability

Each digitally signed document represents a step towards reducing deforestation, minimizing the carbon footprint associated with document transportation, and decreasing storage requirements for physical paperwork. 

The cost savings from reduced paper usage is a win-win scenario for both businesses and the environment.

• Fraud prevention and enhanced security

The advanced cryptographic technologies used in digital signatures make them extremely difficult to replicate or forge. Each signature contains unique encrypted information tied to the signer’s identity, creating multiple layers of authentication. 

Real-time verification processes and comprehensive audit trails ensure that every document signing action is tracked and validated. 

• Simplified remote and global transactions

Whether it’s a startup negotiating with international partners or a multinational corporation managing cross-border transactions, digital signatures provide a standardized, legally recognized method of document authentication. 

This capability is particularly crucial in an increasingly interconnected global business environment, where speed, security, and convenience are paramount.

• Customization and integration with digital workflows

Digital signatures can be easily integrated with enterprise software, CRM systems, and cloud platforms, ensuring minimal disruption to existing workflows. From small startups to large enterprises, digital signature technologies can be scaled and adapted to meet unique business needs.

How does digital signature work?

Ever wondered how a few clicks on your screen can be as legally binding as your handwritten signature? 

Digital signatures work through a complex infrastructure, designed to create a secure and convenient experience. However, before we get to how digital signatures work, let’s understand how eSign works. This can help you differentiate between the two better. 

In India, the most popular eSign—Aadhaar eSign—relies on the Aadhaar system to facilitate electronic signatures. This method allows individuals to sign documents remotely using their Aadhaar-linked mobile number, ensuring both security and compliance with legal standards. 

The process involves authenticating the signer’s identity through a one-time password (OTP) sent to their registered mobile number, followed by the application of the digital signature to the document. This approach makes document signing easy and more efficient.

Now, coming back to digital signatures.

Let’s break down how digital signatures work in simple terms—think of it as a secure digital version of your handwritten signature, but with layers of math and algorithms that make it virtually impossible to forge.

• Public Key Infrastructure (PKI)

PKI forms the foundation of digital signature technology by managing digital certificates and public-private key pairs. 

The system operates through two distinct cryptographic keys—a private key for signing documents and a public key for verification. This asymmetric cryptography ensures that while anyone can verify a signature using the public key, only the holder of the private key can create valid signatures.

The infrastructure includes several critical components working together:

• Certificate Authorities (CAs) that issue and verify digital certificates
• Registration Authorities that validate user identities
• Certificate repositories storing public keys and certificate information

• Creating a digital signature

Here’s what happens when you click that ‘Sign’ button: First, your computer takes your document and runs it through a special mathematical formula called a hash function. This creates a unique summary of your document—change even a single letter, and this summary will be completely different. 

Next, your private key encrypts this summary. This encryption process is what actually creates your digital signature. The clever part is that this signature is unique to both you and the document. You can’t copy it to another document, and nobody else can create the same signature, even if they have the same document. 

This whole process happens automatically when you use digital signature software—you just need to click ‘sign’ and enter your security PIN or password.

• Verifying a digital signature

When someone receives your signed document, their computer automatically checks if the signature is genuine.

First, it uses your public key to decrypt the signature, revealing the original document summary (hash). Then, it creates a new summary of the document it received and compares the two. 

If they match perfectly, it means two things: the document hasn’t been changed since you signed it, and you definitely signed it (because only your private key could have created a signature that your public key can decrypt).

What makes this system so reliable is that it’s mathematically impossible to fake. If even a single pixel in the document changes, or if someone tries to copy your signature to another document, the verification will fail immediately.

• Role of digital certificates and Certification Authorities (CA)

Digital certificates are like your digital ID card, issued by trusted Certification Authorities (CAs). These certificates contain your public key and information about your identity, all vouched for by the CA. 

In India, licensed CAs like eMudhra, SafeScrypt, and Vsign play this crucial role. They follow strict guidelines set by the Controller of Certifying Authorities (CCA) to ensure the whole system remains secure and trustworthy.

• Encryption and hashing algorithms used in digital signatures

The security of digital signatures relies on sophisticated mathematical algorithms. Modern signatures typically use RSA (Rivest–Shamir–Adleman) encryption to ensure extremely high security levels. The hashing algorithms, like SHA-256 or SHA-3, create unique document fingerprints that are virtually impossible to reverse-engineer. 

Note: SHA-256 is a member of the SHA-2 family of cryptographic algorithms, where ‘SHA’ stands for Secure Hash Algorithm.

These algorithms are continuously updated and improved to stay ahead of potential security threats.

Benefits of PKI-based digital signatures

PKI-based digital signatures offer several advantages that make them the gold standard for secure digital transactions.

1. First and foremost, they provide unmatched security through their mathematical foundations—it’s practically impossible to forge a PKI-based signature or modify a signed document without detection.
2. The system also offers complete non-repudiation, meaning signers cannot deny their signatures later. This feature is particularly valuable for businesses dealing with contracts and legal documents.
3. PKI signatures are time-stamped and can include the signing location, adding extra layers of verification that physical signatures simply cannot match.

The scalability of PKI systems means they work just as efficiently for a small business signing a few documents daily as they do for large corporations processing thousands of signatures. Plus, the standardized nature of PKI also ensures compatibility across different platforms and countries, making it ideal for international business.

Difference between e-signature and digital signature

Electronic signatures and digital signatures are often used interchangeably, but they differ significantly in function and security. 

As explained above, eSignatures refers to any digital method used to signify agreement or consent to a document or contract. Aadhaar-based eSign, on the other hand, uses UIDAI-compliant eKYC for authentication. In contrast, a digital signature employs cryptographic techniques to secure the document and verify the signer’s identity. 

Here’s a quick table highlighting their difference—

Feature	Digital Signatures	Aadhaar-based eSign
Authentication method	Uses Public Key Infrastructure (PKI) with public and private keys for encryption.	Authentication is done via OTP linked to an Aadhaar number.
Technology	Relies on digital certificates and secure hardware tokens (USB keys).	Uses Aadhaar e-KYC for electronic authentication and signing.
Usage flexibility	Ideal for high-value transactions and legal documents, typically used by businesses and professionals.	Suitable for everyday use as well as critical transactions, such as agreements or consent forms.
Process complexity	Requires a DSC (Digital Signature Certificate), which involves a detailed registration process.	Easier and quicker to use—signing is completed using a simple OTP authentication linked to Aadhaar.
Cost	Can involve higher setup costs for purchasing digital certificates and secure tokens.	Highly cost-effective, as it leverages the existing Aadhaar infrastructure, eliminating the need for additional certificates or hardware.

Legal framework for digital signatures in India

The Information Technology Act, 2000 (IT Act) and its amendments provide the legislative backbone for digital signatures in India. This act gives digital signatures the same status as handwritten signatures, making them valid for most business and legal purposes.

Also as mentioned above, under Indian law, digital signatures created through licensed Certification Authorities (CA) are considered legally binding.

The IT Act also specifies where digital signatures can be used—from filing tax returns to signing corporate documents. However, some documents like a negotiable instrument other than a cheque, a will, or a Power of Attorney still require physical signatures under Indian law.

Security aspects of digital signatures

Security is the cornerstone of digital signatures, and understanding their security features helps build trust in digital transactions. The primary security aspects include:

1. Tamper evidence: Any modification to a signed document immediately invalidates the signature, making document tampering impossible to hide.

2. Identity verification: The PKI system ensures that signatures can only come from the authorized signer, preventing identity theft and signature forgery.

3. Time stamping: Each signature includes an encrypted timestamp, preventing backdating or future dating of documents.

Private keys are usually protected by additional passwords or biometric verification, and digital certificates are regularly updated to maintain security. However, users play a crucial role in maintaining security. 

Digital signatures offer adequate security, but they come with a few drawbacks that can hinder widespread adoption. 

Despite their strong encryption and tamper-evident features, digital signatures require a Public Key Infrastructure (PKI), which can be complex and expensive to implement and maintain. The need for secure hardware or software to store private keys also presents a challenge, as these tools can be vulnerable to hacking or physical theft if not properly protected.

Another limitation is the reliance on digital certificates, which must be issued and regularly renewed by trusted Certificate Authorities (CAs). If a certificate is expired or compromised, it could invalidate the signature or lead to security breaches.

In contrast, eSign solutions provide a more convenient and secure alternative, reducing the complexity of managing certificates and private keys. Additionally, eSign eliminates the need for expensive infrastructure or hardware, making it a cost-effective choice, especially for businesses looking for easy-to-implement, secure signing solutions.

Key takeaways

While digital signatures offer robust security, they are often complicated and come with certain limitations. The process of obtaining a digital signature certificate (DSC) involves time-consuming registration, significant costs for purchasing certificates and hardware tokens, and a steep learning curve for end users. Additionally, the need for physical tokens to store the private key can be inconvenient and pose security risks if lost or compromised.

In contrast, Aadhaar-based eSign offers a streamlined solution to these challenges. By leveraging India’s established Aadhaar infrastructure, eSign simplifies the authentication process through OTPs linked to Aadhaar, eliminating the need for expensive certificates or hardware tokens. This makes the entire process faster, more accessible, and cost-effective, particularly for businesses and individuals who find traditional digital signatures cumbersome.

As the demand for more efficient, secure, and user-friendly digital solutions grows, eSign is playing a pivotal role in driving India’s digital transformation. Its ability to address the limitations of digital signatures, while ensuring a high level of authenticity and security, makes it an ideal tool for modern businesses looking to simplify their signing processes.

Want to explore how eSign can make your business processes more efficient and secure? Learn more about eSign and its role in India’s digital revolution at HyperVerge’s eSign solution.

FAQs

1. How is an electronic signature different from a digital signature?

An electronic signature is any digital representation of intent to sign, like a typed name or scanned image, while a digital signature uses encryption and PKI technology to securely authenticate the signer’s identity. 

2. Are digital signatures legally binding in India?

Yes, digital signatures are legally binding in India under the Information Technology Act, of 2000. They are valid for signing contracts and documents, provided they are issued by a Certification  Authority (CA)and meet specific security standards.

3. Can anyone create a digital signature?

To create a digital signature, one must obtain a digital certificate from a certified Certifying Authority (CA), which requires identity verification. Only authorized individuals with valid certificates and private keys can create legally valid digital signatures.

4. What is eSign, and how does it work?

eSign is a secure and efficient method of electronically signing documents, leveraging digital authentication mechanisms to verify identity. Unlike traditional signatures, eSign ensures the authenticity and integrity of a document without the need for physical presence or paperwork.