As we enter a digital assets peak, internet users face greater cyber attacks and malicious activities than ever. All computer systems and networks require reliable security solutions.
Blockchain technology lies at the core of cryptocurrency. Adopted across many industries ranging from finance and healthcare to supply chains and supply management, Blockchain's inherent data security mechanisms of cryptography, decentralization, and consensus are one of the primary reasons behind its widespread acceptance. We will discuss in depth these mechanisms of protection within blockchains and any associated risks should improper implantation occur.
What is Blockchain?
Blockchain is an electronic ledger which records transactions using a distributed network of computer systems, each holding transaction data, timestamp and cryptographic hash from previous blocks linked together in sequence, making alteration difficult as all blocks must be changed at once.
Blockchain Types
There is an assortment of blockchains. Each type offers something distinct:
Private Blockchain Networks
Private blockchains typically operate within closed networks and work best for businesses or private organizations that prefer customizing access, authorization, network parameters and security according to their preferences. A private blockchain can only be managed by one authority.
Public Blockchain Networks
Bitcoin and other cryptocurrencies were first created through public ledger blockchains. Their success ultimately helped popularize distributed ledger technologies (DLT). Public blockchains can help reduce security concerns as data can now be distributed over an open network instead of being stored centrally on one server; proof-of-Stake (PoS) or proof of Works (PoW), two commonly employed consensus algorithms to verify authenticity are often employed here as well.
Blockchain Networks with the Permission
Private blockchains (also referred to as hybrid Blockchains or private Blockchains with special access for authorized users) are set up by organizations to take full advantage of both aspects. Furthermore, this type of network helps increase organization when assigning individuals who will participate in transactions across its network.
Consortium Blockchains
Consortium blockchains resemble permissioned blockchains by having both public and private elements. However, multiple organizations manage them instead of one entity alone. Although more complicated to set up initially, once running, these chains offer increased security, allowing multiple organizations to collaborate effectively in managing multiple blockchains simultaneously.
Hybrid Blockchains
Hybrid Blockchains combine both private and public blockchains. While some parts are open and transparent to everyone, others are only accessible to authorized participants. Hybrid blockchains are ideal for situations requiring privacy and transparency - for instance, supply chain management, where various parties need access to certain data while sensitive details must remain private.
Sidechains
Sidechains operate independently from main blockchains to add greater functionality and scaling; developers can experiment with various features without jeopardizing the integrity of the main chain. Sidechains may be implemented for decentralized apps or implementation of certain consensus mechanisms, while transactions on the main chain can use side chains for scaling purposes and reduce congestion.
The Blockchain is a Layer of Security
Multiple blockchain layers refer to stacking them up one upon another. Each layer possesses its own rules and functionality as well as its consensus mechanism that interacts with those from other layers - this enables transactions across layers to take place concurrently, leading to greater scaling potential. Lightning Network, for instance, is a second-layer solution built on Bitcoin that facilitates faster and cheaper payments between users by providing payment channels.
Why Is Blockchain Popular?
Imagine this: you need to transfer money between accounts. By using online banking, the funds would be sent directly from one account number to the next; once completed, records of this transaction would be updated by your bank - although many overlook a potentially serious complication in this process.
Blockchain was designed specifically to overcome this vulnerability and increase trust with transactions using this type. Blockchain, an emerging technology that has recently gained significant attention, is an electronic ledger that stores transactions. You may wonder why so many are interested in it - let's examine this concept to gain more clarity!
Businesses depend heavily on accurately recording transactions and data for efficient functioning. This task may be managed internally or by third parties such as brokers, lawyers or bankers, which increases both cost and time of doing business; Blockchain allows faster transactions, saving both.
Many people mistake Blockchain and Bitcoin for the same. However, this is not accurate. Blockchain can be utilized across numerous fields, including finance, supply chains and manufacturing, while Bitcoin acts as its cryptocurrency backbone, reliant upon Blockchain security for protection purposes.
Decentralization
Blockchain technology is a decentralized system. Decentralization means no central authority, making hacking and corruption harder to achieve. Data are typically stored in central databases; anyone with access to one will have control of all the information stored therein; all participants in a decentralized network have their copy of a ledger that can be checked against others to detect potential corruption; however, prioritizing decentralization over security or scalability poses the so-called Blockchain Trilemma difficulty which must be resolved when prioritization may cost them dearly in terms of both security or scalability considerations.
Consensus
Blockchain and other decentralized systems utilize consensus mechanisms for verifying transactions in batches, setting rules that network participants must abide by to validate each batch of transactions. Various consensus mechanisms vary in energy consumption, speed of transactions, cost, and how participants join and use their network.
Proof of Work
Proof of work is the primary consensus method employed by Bitcoin. Participants in its network voluntarily verify transactions, solve computational puzzles and compete to add blocks to its Blockchain; those successful will earn digital currencies native to their blockchain protocol as rewards. Miners may also receive transaction fees paid by network users as rewards for verifying transactions within each block they mine.
PoW has the advantage that an attacker is highly unlikely to gain control of 51% of all mining power on an attack network; the more miners competing on it, the more mining power will be created, thus leading to a safer blockchain environment.
Miners that consume energy and computing power to solve PoW blockchains, such as Bitcoin, are, in essence, wasting their efforts as only one individual has the solution to the puzzle. However, Bitcoin Network (BTC) requires significant energy consumption that imposes on our environment in the form of carbon emissions.
Proof of Stake
Proof of Stake is a consensus mechanism many popular cryptocurrencies like Solana and Cardano adopt. Validators, rather than each miner needing to contribute energy to solve the block problem using mining pools, are selected through algorithms instead. They verify transactions while minting/forging new blocks to earn stake rewards, as validators must stake certain amounts over an agreed time. Increasing stake amounts increases your chance of selection.
Proof of Stake is another approach designed to combat 51% of attacks; an attacker must gain at least 51% staked crypto and mining power on the Blockchain before engaging in malicious activities that result in the loss of all their staked currency.
PoS is disadvantageous because it benefits those with large volumes of cryptocurrency assets.
The Immutability of the Law
Blockchain technology's immutability has proven its popularity; once verified transactions occur, no entity can modify data in the network, thereby increasing data integrity and leading to greater trust and reliability for everyone involved in transactions.
Immutability has drawbacks; there's no accounting for human errors when sending transactions incorrectly to different addresses. Making your first blockchain transaction may seem intimidating, so check out our article about depositing and withdrawing cryptocurrency to choose your best network and start transacting today!
Cryptography
Blockchain technology relies heavily on cryptography for security. Hash functions and Asymmetric Cryptography are two cryptographic algorithms utilized by this application of cryptography, among others.
Hashing Functions
Hash functions are algorithms which accept input of any length and generate unique values of predetermined length for output, the results of which would change dramatically if input data were altered; depending on which algorithm is used, different length results are produced - one popular, secure hashing algorithm used by Bitcoin is called SHA-256 with its output length set at 256 bits.
Scrypt, one of Litecoin's hashing algorithms, is known to be more efficient at producing blocks faster. While its simpler algorithm has come under criticism for being less secure and producing unfavorable results in security breaches or reverse engineering incidents.
Each block added to a blockchain network stores the hash value from the block before it, so any data manipulation would result in subsequent hash values also changing and creating a cascading effect that allows other network members to identify and reject altered blockchains quickly and efficiently.
Read More: How Can Blockchain Technology Shape the Future of Earth
Cryptography Asymmetric
An asymmetric cryptography technique utilizes two keys - public and private. Public keys are crypto wallet addresses available to all, while private ones remain secure and cannot be lost. A public key will encrypt data sent to an address; only a private secret can unlock it; you won't be able to deduce its private secret from public-available ones!
Public blockchain keys serve as addresses that anyone can use to send cryptocurrency; however, only users with private keys possessing these privileges can transfer or withdraw the funds themselves.
Blockchain cannot exist without digital signatures, which rely on asymmetric cryptography and are generated when transaction requests are submitted; each digital signature generated this way cannot be falsified as its encryption uses the user's private key and, therefore, cannot be falsified by third parties. When requests for specific transactions come through, they generate their digital signature with hashing functions hashing data before being encrypted with the senders' private key for secure storage and transmission.
Signatures are attached to transactions and sent for verification to a miner using hashing functions similar to what the signature uses; then, this information can be verified against its hash value - with authentic transactions matching up exactly with signature hashes values.
What are the Consequences of Poor Blockchain Security?
Blockchain infrastructure may seem secure at first glance; however, a poor implementation may reveal serious security vulnerabilities caused by human mistakes in the code that make up its blockchain network. Left unchecked, they could lead to double spending, leakage of private keys and freezing assets; here are two real-world cases of real blockchain breaches and security problems:
A decentralized Autonomous Organization (DAO) is an uncentralized governance system operating on the Blockchain network that makes up part of its governance structure. This decentralized entity's code is public. Ethereum DAO was targeted, leading to the theft of over 3.6 Million ETH through exploiting a bug within their code that allowed attackers to reuse DAO tokens multiple times before eventually getting caught and banned by authorities.
Proof-of-Work consensus mechanisms do not offer immunity from vulnerabilities. When more than half the mining power belongs to one group, there is the potential for them to double spend coins and manipulate transactions - an incident occurred with Ethereum Classic (ETC), a fork from Ethereum (ETH). An individual hacked ETC, performing double spending at multiple exchanges and leading to an estimated US$1.1 million loss; Bitcoin is generally less vulnerable.
Security of Blockchain in Other Industries
Blockchain has proven secure and non manipulable over time and now sees widespread application outside cryptocurrency alone.
Current Applications
Cybercriminals often ensnare centralized banks due to the large sums of money they hold in trust for customers. JP Morgan is one of the U.S.'s largest financial institutions; Quorum uses a blockchain-powered platform as part of their private transaction solution for handling private deals.
Patients trust healthcare organizations with sensitive, private information. A weak cybersecurity system could leave sensitive data vulnerable to hackers who use it to extract money from hospitals and patients. Now hospitals are working with tech firms such as Hashed Health's digital blockchain network technology provider Hashed Health to safeguard this sensitive data and secure digital networks that benefit healthcare firms and hospitals alike.
Future Possibilities
Blockchain has had an immense influence, being implemented across industries in order to protect data in an ever-more data-driven world. Establishing secure networks has never been more vital.
As blockchain systems mature and expand, their use will expand accordingly to protect data integrity in more sectors, potentially becoming the new information storage form. Small businesses could soon adopt their own blockchain networks as this technology grows and becomes accepted in society.
Immutability, Consensus and the Concept of Unchangeability
Consensus and immutability are central concepts to blockchain security. Consensus refers to nodes reaching an agreement on both the real state of their systems and valid transactions - with its process determined by so-called consensus algorithms.
Blockchain's immutability lies in its capacity to stop any changes made to confirmed transactions involving cryptocurrency exchange or other non-monetary information stored digitally in blockchains.
Consensus and immutability form the core components of data security for blockchain networks. Immutability ensures transaction records, while consensus algorithms verify compliance with the rules and regulations of each blockchain network.
Cryptography and Blockchain Security
Blockchains rely heavily on cryptography for data security. Cryptographic hashing plays an essential part; an algorithm, or "hash function", receives input data of any size from users before producing hashes with fixed length and predictable information content as its output result (hashes).
No matter how often or frequently this function is called upon to function, its output remains consistent regardless of input changes. Should your input alter? However, its effect on hash output can differ substantially. However, should no such modifications occur, its hash resultant is always identical regardless of the frequency with which this function is called upon to operate.
Hashes serve as unique identifiers of data blocks within blockchains and serve as unique identifiers of each block's contents about that of each previous one, creating chains as they go along. Since hashes of blocks depend on data changes within them, any modifications require altering its hash accordingly and vice versa.
Hash values for each block are calculated based on its data within it and on the previous block's hashes; their purpose is to maintain immutability and security within blockchains.
Consensus algorithms used to verify transactions employ hashing, too. Proof of Work (PoW), for instance, uses a hash function known as SHA-256 on the Bitcoin blockchain - this produces hashes with 64-character long hash values as per data inputted to it.
Cryptography is used to safeguard ledgers that record transactions and wallets storing cryptocurrency units. Asymmetric or public key encryption creates pair keys for receiving and sending payments, while private keys allow digital signature verification for transactions.
Specific details regarding Asymmetric Encryption are outside the scope of this article; however, Asymmetric cryptography provides a way to keep funds secure within cryptocurrency wallets until their owner chooses to spend them.
Crypto-economics
Cryptoeconomics, an emerging concept to complement cryptography itself and crypto economics more generally, also plays a part in protecting blockchain networks. Utilizing Game Theory principles - where rational agents make decisions according to predetermined rules - Crypto Economics models nodes' behavior on distributed systems like Blockchain, while its traditional application remains applicable across many situations.
Cryptoeconomics is the study that studies economics and user outcomes associated with blockchain protocols and systems such as Ethereum. Cryptoeconomics provides security by presuming that nodes' incentives to behave honestly outweigh those for malicious or flawed actions - this principle can best be shown through Proof of Work algorithms used for mining Bitcoins.
Satoshi designed Bitcoin's framework so as to be both resource-intensive and costly; PoW mining requires complex computation, regardless of where nodes may reside, its purpose being to deter malicious mining while offering incentives to honest miners who participate. Any node engaging in dishonest mining practices is quickly eliminated from the Blockchain network, while honest miners can earn substantial block rewards for their service.
Balanced risks and rewards also protect against attacks which could undermine consensus by centralizing majority hash rates of the Blockchain network in one group or entity's hands; such 51 per cent attacks could prove devastating should they succeed; fortunately, though, due to Bitcoin's vast size and highly competitive Proof of Work mining process, their chances of taking control over significant numbers of nodes is minimal.
As long as malicious nodes don't find it cost-effective to create majorities of nodes that support illegal activities and sufficient incentives exist for honest activities, the system should continue without major disruptions. Unfortunately, smaller blockchain networks are particularly susceptible to majority attacks as their hash rates tend to be lower than Bitcoin's total hash rates.
Myths About Blockchain Immutability
Two myths exist regarding the immutability of Blockchain:
Immutability is Synonymous with Data Integrity
Many people assume that data can only be trusted if it cannot be altered or deleted; Blockchain does not hold this magic power for data verification.
Due to the Blockchain's Immutability of Data
Malicious actors cannot alter it after its network nodes have fed into it. They do not control it once it enters. Imagine Oracle data being fed directly into the Blockchain by third parties; such information could be affected by network latency, validation errors, or hardware malfunction.
So it is vitally important that additional measures, such as sharing hash outputs among stakeholders, are implemented for additional verification of data stored on blockchain systems. It adds another verification level which helps ensure data stored therein remains reliable and accurate.
The Data in the Blockchain Network Cannot be Altered
No one can manipulate blockchain networks easily or effortlessly, though not impossible. Doing so would require cooperation and the recalculations of cryptographic hashes, both tasks being exceedingly challenging for anyone trying to manipulate public blockchains like Bitcoin.
To successfully manipulate data within a blockchain network, colluding parties must combine efforts and gain control over most computing power. Achieving a 51% attack requires large sums of money, which makes this an unlikely scenario.
Although tampering with data in a blockchain may be technically possible, such a scenario would likely involve great cost and effort - making Blockchain an extremely reliable means for protecting its integrity and safeguarding information security.
Immutability and its Applications
Blockchain's immutability provides many other tangible applications outside of cryptocurrency.
Here are a few of the top applications:
Supply Chain Management
The immutability of private Blockchain allows companies to create an auditable supply chain. That ensures goods can be traced and authenticated at every step in production, reducing fraud while strengthening accountability.
Digital Identity
Blockchain's immutability enables more secure and cost-efficient verification procedures, transforming everything from healthcare to banking. Verifying identity and authenticating transactions now becomes simpler and safer.
Voting Systems
The immutability of blockchains makes them ideal tools for designing transparent voting systems that are secure, auditable and audit-ready - helping ensure more auditable and trustworthy elections while decreasing fraudsters and improving democratic processes.
Healthcare
Blockchain's unchangeability provides for secure, private storage and sharing of medical records - leading to improved coordination of care and diagnosis and treatment decisions.
Intellectual Property
Blockchain's immutability enables its use for safely storing intellectual property and verifying ownership, thus mitigating risks related to piracy while assuring creators receive appropriate compensation.
Conclusion
Since Bitcoin's original conception, Blockchain has experienced immense development. Industries across various fields rely on its inherent security; decentralization gives users more power while eliminating potential attack points. Digital signatures and cryptography ensure transactions on blockchain networks are authenticated and protected, and hash functions ensure an unalterable technology with high trust ratings. Badly implemented blockchains can have serious repercussions. Hackers could exploit loopholes in the code to manipulate data, steal private keys or double spend, provided it has been rigorously tested and audited beforehand.
