It is a technique for validation of data. Validation is a process of certifying the content of a document. The digital signatures not only validate the data but also used for authentication. The digital signature is created by encrypting the data with the private key of the sender. The encrypted data is attached along with the original message and sent over the internet to the destination. The receiver can decrypt the signature with the public key of the sender. Now the decrypted message is compared with the original message. If both are same, it signifies that the data is not tempered and also the authenticity of the sender is verified as someone with the private key(which is known to the owner only) can encrypt the data which was then decrypted by his public key. If the data is tempered while transmission, it is easily detected by the receiver as the data will not be verified. Moreover, the massage cannot be re-encrypted after tempering as the private key, which is posses only by the original sender, is required for this purpose.
As more and more documents are transmitted over internet, digital signatures are essential part of the legal as well as the financial transition. It not only provides the authentication of a person and the validation of the document, it also prevents the denial or agreement at a later stage. Suppose a shareholder instructs the broker via email to sell the share at the current price. After the completion of the transaction, by any chance, the shareholder reclaims the shares by claiming the email to be forge or bogus. To prevent these unpleasant situations, the digital signatures are used.
Figure : Digital signature