Cryptonomics: Blockchain Security Explained

While many people think blockchain security is light to non-existent, there are measures taken to ensure user safety.

By
Wilfred Victor
on
June 2, 2021
Category:
Cryptonomics

What Makes a Blockchain Secure?

Blockchain security is the very basis of cryptocurrency transactions. Security is the underlying structure of cryptocurrency platforms, which has prevented digital currencies like BTC from double spending, duplicates, and destruction. The blockchain is the core of the cryptocurrency and digital era, for, without it, there would be tons of discrepancies and security flaws within transactions. Its unique attribute is achieved through various mechanics, including advanced cryptographic techniques and mathematical models of behavior and decision-making using Game theory.

 

Blockchain Security: An Innovative Set of Rules

Blockchain technology allows for tamper-proof transactions between people who ordinarily wouldn’t trust each other. This achieves a trustless forum of transactions using a set of innovative rules that have proven to be unsusceptible to attacks over the years. This is made possible because Blockchain stores data using complex maths and sophisticated software rules including game theory. This technology has kept hackers on their toes resulting in an immutable and incorruptible technology.

 

The Concepts of Immutability and Consensus

Immutability and consensus are the two chief reasons why the blockchain is considered trustless and tamper-proof; they play a major role in ensuring the blockchain’s unhackable nature. By immutability, the blockchain ensures that transactions are not duplicated, preventing alteration of transactions that have already been confirmed. It’s safe to say that the blockchain does not only store financial transaction records, on distributed ledger technology, but it also stores other data that is non-finance-related.

By consensus, the blockchain uses a node concept to share data and achieve consensus in the network. For example, in the Bitcoin blockchain; the shared data is the history of every transaction ever made, the ledger is stored in multiple copies on a network of computers called nodes, owned by miners. Every time a transaction is submitted for approval, the nodes do the work of verifying such transactions, and will have to agree for such transactions to be mined (approved). After which, such mined data is added to a set of previously approved data chains called blocks. Miners who successfully add a new block to the chain get rewarded in Bitcoin.

 

Consensus Algorithm

Specifically, the concept of consensus and achieving it is made possible by the consensus algorithm used by each blockchain type. The consensus algorithm is the primary root of blockchain technology. They are what make blockchain types different from the next and what fuels each blockchain type’s behavior. The two most popular types of consensus are the Proof-of-Work (POW) where miners solve a problem to verify a transaction and Proof-of-Stake (POS) which encourages users to stake tokens until he/she becomes a validator. The Bitcoin network uses Proof-of-Work to achieve its consensus, which has proven very effective against malicious attacks. On the other hand, another legacy blockchains, ETH, is migrating its network from Proof-of-Work to Proof-of-Stake in its upcoming updates aiming to reduce fees significantly in ETH 2.0.

 

Cryptography and Blockchain Security

Cryptography is of core importance to blockchain technology, providing security to the blockchain. Security is achieved through using cryptographic hashing functions. Hashing is the process where an algorithm (hash function) receives an input of data of any size and returns output in a hash that contains a predictable and fixed size of length. This allows for data to be protected from the third party to gain access and knowledge of the private messages or transactions during a communication process.

Generally, the blockchain makes use of the SHA 256 hashing algorithm as it is a common hash function. Hash functions help provide a single view of blockchain to every participant, acting as a unique identifier for each transaction added to the previous block. Hash functions thereby protect the blockchain’s integrity, since reverse engineering is not possible on the output data.

 

The Weakness of the Blockchain

By itself, a blockchain is very much secured owing to its strict rules and mathematical implementation; it has proven to be tamper-proof and has withstood several attacks. In contrast, the weak link lies in the exploitative tendencies of smart contracts, a type of automated transaction between parties written in lines of codes that have resulted in some significant losses. While the Solana ecosystem has remained mostly-free of these exploits, the burgeoning Binance Smart Chain has seen a swarm of attacks using flash loan exploits.

There is also a growing concern about the centralization of blue-chip cryptocurrencies, such as Ether and BTC. This is because the mining of these coins seems to be concentrated heavily in selected regions of the world, although with China’s recent restatement of their mining ban, the activity levels could begin to balance out into other locales. These concerns have also been heightened by recent arguments that Bitcoin mining is environmentally unsustainable. While these concerns have been rebuffed by some parties, it is no doubt an issue that blockchains need to find a way around before they can reach full adoption.

Final Thoughts

While there is no way to ascertain whether security is truly unbreakable, blockchain technology has evolved to the point that exploits are few and far between. The exploits that do occur are happening with a fairly low frequency, almost allowing for a comparison to bank robbery, except on a digital level. While the risk of an attack does still exist, the security measures in blockchains have improved tremendously over the years. As long as users are careful and DYOR about protocols and tokens, they should remain relatively safe from risk.

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Wilfred Victor

Ace finds himself as a blockchain enthusiast who is focused on growing with the entire crypto sector. He is an energetic and passionate writer who believes that all things are achievable.