Blockchain is often touted as a secure method of storing information, but how secure is it? For the purposes of this article, we will look at the first and most famous blockchain, Bitcoin. Although nothing is 100% secure, blockchain transactions are designed to be immutable, tamper-proof, and democratic. The complex interplay of these features prevents unfair transactions and prevents fraud.
Traditionally, information must be created and owned by anyone who wants to store, share, or process it. This includes buying information, obtaining user rights if necessary, and then ensuring that those who change are aware of the change. Handling information in this way can easily become a source of conflict between users, developers, businesses, government agencies, etc.
Blockchains, on the other hand, distribute the same information to all users and nodes on their network. When you make a change, the transaction is validated by the network and then added to a new block, which is then added to the blockchain. Miners or nodes are rewarded for updating the blockchain then add transactions to the block.
This is the basis for the security of the blockchain and its users, as well as for the protection of privacy and data protection.
Otherwise, fraudulent behaviour would be detected and the lock would be changed and rejected; blocks cannot be modified to remove a new block, only the original block.
While decentralisation is the foundation of blockchain, cryptography is a sinew of complex mathematical algorithm for warding off attacks. The hashing takes an input value and applies a set of rules to create a new fixed length value. Blockchain data cannot be hacked or processed in encrypted form to hide their true identity.
Each block has a unique hash derived from each transaction in the block, which itself also hashes the transaction ID. To change a block retroactively, the previous block and the entire history of the blockchain would also need to be changed. The private key used to access and move Bitcoins is also hacked and becomes a public key, allowing people to send Bitcoins without being able to steal them.
What makes hashes special is that it is impossible to implement reverse engineering: you cannot take the public key and use it to derive the private key. Every tiny change in the input value creates a completely new hash ID, meaning that scammers cannot get away with making small changes without devaluing the entire block.
The consensus is the brain of the blockchain: all nodes first confirm that a block meets the standard rules of the Bitcoin blockchain. They then decide which blocks to add, pitting each other and the bitcoin price against each other in a cryptographic race.
Miners then compete against each other to solve a cryptographic puzzle based on the data contained in the block. Miners solve the puzzle, and if everyone agrees on a solution, a block will be added to the blockchain as quickly as possible.
This particular type of consensus is called a work record, and ensures that the block goes through a complex mathematical process to become an invariable part of the blockchain. Miners are encouraged to play by the rules as they are rewarded with 6.25 BTC for each solution. This labour-intensive measure is intended to help deter criminal activity, but also to ensure security.
When more than 50% of mining performance belongs to a minority of nodes, this prevents other nodes from adding new blocks, effectively controlling the network. The threat to this working model – consensus is the 51% attack, and it is the most common type of attack on the blockchain.
Attacking 51% requires a lot of energy and money to succeed, and would allow duplication of spending and other types of fraud. IO acquired a 50% stake in itself in 2014 and voluntarily reduced its mining power to preserve the integrity of the network. This has not yet happened, but could lead to serious problems in the near future, as it would cause significant disruption to the blockchain.
Other cryptocurrencies, such as Bitcoin and gold, have been less fortunate, but in fact they are not part of the blockchain. Perhaps the most pressing blockchain vulnerability stems from how it interacts with other things. Smart contracts, for example, can automate many blockchain tasks and are much more secure than the code in which they were written. However, if the code is poorly written, a hacker can break into a smart contract and redirect assets information.
Similarly, centralised institutions that interact with the blockchain could jeopardise the network. Hackers are aware of the vulnerability in blockchain technologies such as smart contracts, but they generally target centralised repositories where there are vulnerabilities that they can exploit.
Much of the cryptocurrency trade today is handled through centralised exchanges such as Coinbase, Bitfinex. In 2011, Bitcoin and other cryptocurrencies worth more than $1.5 billion were stolen from the now defunct Mt GOX exchange, one of the largest in the world.
Most security vulnerabilities are fixed quickly, but in extreme cases can lead to a new version of blockchain known as hard fork. Ethereum has done a great job of restoring ether stolen from the DAO (Decentralised Autonomous Organisation). Blockchain is still a technology that is evolving every day. Overall, blockchain is a more secure way to store and exchange digital assets than anything that has come before.
It is important to develop and improve the blockchain ecosystem to make it as secure as possible. This means that nobody is perfect, but nothing is, and it is important that we develop it, improve it and ensure that it works as well as possible.