What is Blockchain, and why/how is it secure? You may have asked yourself these questions more than once, and this article will clarify everything.
Blockchain is a distributed ledger that facilitates the record of transactions and tracks assets in a business network. It is a digital ledger maintained and updated by a network of computers instead of a central authority. The ledger is made up of blocks that are linked and secured using cryptography. Each block contains a hash of the previous block, a timestamp, and transaction data. This structure ensures the entire network’s integrity, security, and transparency. This makes blockchain useful for applications such as digital currencies and identity.
Blockchain is used across various industries, such as finance, supply chain management, healthcare, and real estate. It is used in these industries to automate processes and increase efficiency. It also tracks orders, payments, accounts, and production activities. Blockchain is a decentralized technology. There is no single entity in control of the network. Instead, all participants in the network have access to a copy of the ledger and must reach a consensus on any decision that affects the state of the network. This makes data difficult to alter or tamper because it has already been recorded on the network. Blockchain allows users to gain complete control over their data and assets and store or transfer it transparently and securely without the help of intermediaries.
Types of Blockchain Technology
The following are the three main types of blockchain technology:
Public Blockchain: A public blockchain is a decentralized network where anyone can participate as a node and validate transactions. These transactions are processed through consensus mechanisms, such as proof of work or proof of stake. Here nodes have to compete to validate transactions and add them to the next block in the chain. There are no restrictions; everyone can access transactions and data on the blockchain. It is secure and also tamper-proof as a result of cryptographic techniques. Examples of public blockchains include Bitcoin and Ethereum.
Private Blockchain: A private blockchain is a blockchain network that is not publicly accessible and is only used within a specific organization. It is a centralized network where a pre-selected group of participants can set and enforce rules, make necessary changes and govern the network. Private blockchains are faster and more scalable than public blockchains, but they lack transparency and decentralization. Organizations mainly use these to achieve higher control and privacy levels for business operations, such as supply chain management, financial transactions, and record-keeping.
Consortium Blockchain: A consortium blockchain is a public and private blockchain hybrid. It is a partially centralized network where a pre-selected group of participants, or nodes, validate transactions. This blockchain network balances the transparency and accessibility in public blockchains with security and control in private blockchains. It is used in corporations that work with shared infrastructure. Examples of consortium blockchains include banking, supply chain management, and government applications.
Consensus Mechanism in Blockchain
A consensus mechanism is an algorithm used to achieve agreement on the current state of the network among the different blockchain participants. The purpose of a consensus mechanism is to ensure that all nodes in the network have a consistent and up-to-date view of the blockchain, even in the presence of malicious actors.
The following are several consensus mechanisms used in different blockchain networks:
Proof of Work (PoW): it was first used by Bitcoin. Here participants compete to solve a mathematical problem, and only the first to solve the problem can validate transactions and add a new block to the chain. PoW is highly secure but consumes a lot of energy and can be slow.
Proof of Stake (PoS): This consensus mechanism randomly selects participants otherwise known as validators to create new blocks based on the number of tokens they hold and stake in the network. It is faster and more energy-efficient than PoW. It is used in the Ethereum network.
Delegated Proof of Stake (DPoS): It is a variation of PoS where token holders delegate their voting power to others to validate transactions and create new blocks on their behalf. This consensus process is faster, but it centralizes power in the hands of a few, making it prone to security issues.
Byzantine Fault Tolerance (BFT): BFT is a consensus mechanism used in blockchain networks to agree on the state of the network, even in the presence of malicious nodes. In a blockchain network, nodes are responsible for verifying transactions, adding new blocks to the chain, and reaching a consensus on the state of the network. Suppose a malicious node tries to submit conflicting information or manipulate the transaction in any way. In that case, the BFT algorithm will detect the discrepancy and prevent it from being recorded on the blockchain.
Decentralized Systems and Smart Contracts
Decentralized systems and smart contracts are two closely related concepts in blockchain technology.
A decentralized system is a network system where all participating nodes make decisions collectively rather than by a central authority. Each node has the same copy of transactions and participates in verifying and validating transactions in the network. This makes the system secure and transparent, as all nodes access the same information. A decentralized network keeps functioning even if some nodes in the network fail.
Smart contracts are computer programs that are executed when the terms of the agreement or contract are fulfilled. They are used to automate the verification and execution of transactions on the blockchain network. In a decentralized system, smart contracts can be used to enforce a transaction’s rules and regulations without intermediaries’ help. For instance, a smart contract can transfer assets or values between parties based on fulfilling specific requirements, such as the completion of a project or the delivery of a product. Once a smart contract is deployed, it cannot be altered. It is an automatic and reliable method of conducting transactions.
Vulnerabilities in Blockchain Security
Blockchain technology is very secure and tamper-proof due to decentralization and cryptographic algorithms. However, no system is immune to security vulnerabilities, and the blockchain is no exception. Here are some of the critical vulnerabilities in blockchain security:
51% Attack: A 51% attack attack occurs in a blockchain network where an attacker gains control over a majority of nodes in a network and over 51% of the network’s computing power to manipulate the network. This can result in the attacker being able to reverse transactions, launch a denial of service (DOS) attack, and double-spend coins.
Smart Contract Vulnerabilities: Smart contracts are self-executing contracts that contain the terms of the agreement between a buyer and seller written into lines of code. Smart contracts have security vulnerabilities that attackers can exploit. For example, the DAO hack in 2016 witnessed a vulnerability in a smart contract resulting in the theft of over $50 million worth of Ether.
Theft or Loss of Private Keys: Private keys are used to sign transactions and provide access to assets on the blockchain. They are vulnerable to theft or loss. When a private key is either stolen or misplaced, an attacker can access the assets associated with the corresponding public address in the network.
Also, the unavailability of computing resources can impact the security of blockchain systems. For instance, if a significant portion of the nodes in a blockchain network goes offline due to a power outage or network disruption, it can make the network more vulnerable to certain types of attacks, such as a 51% attack. It can also lead to slow processing speed and increased latency. Therefore, blockchain networks must be designed with redundancy and fault tolerance in mind to minimize the impact of physical events on their security and stability.
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Permissioned Blockchain and Encryption Technology
Permissioned blockchain and encryption are two concepts that can work together to provide secure and private transactions.
A permission blockchain is a type of blockchain where access to the network is restricted. Only authorized participants can join the network and participate in the consensus process, and this contrasts with a public blockchain, such as Bitcoin or Ethereum, where anyone can participate.
Permissioned blockchains are often used in enterprise and consortium settings, where participants are known as entities. This type of blockchain offers efficiency, scalability, and security compared to permissionless blockchains. It provides a way for organizations to leverage the benefits of blockchain technology while still maintaining control over the network and its participants.
Examples of permissioned blockchains include the Hyperledger and Enterprise Ethereum Alliance.
Encryption is a method of encoding information that only authorized individuals can read. It is a technique used to secure data and ensure its confidentiality. Encryption transforms plaintext into ciphertext (unreadable data) using encryption algorithms and a key. The key is used to encrypt and decrypt data. The following are types of encryption algorithms:
- Symmetric encryption: Here the same key is used for encryption and decryption.
- Asymmetric encryption: Also known as public-key cryptography, where a public key is used for encryption, and a private key is used for decryption.
- Hash functions: These are one-way functions that can be used to ensure data integrity.
Permissioned blockchain networks require advanced encryption algorithms such as SHA-256 and AES to ensure secure communication and protection of sensitive data. Digital signatures, encrypted using public key cryptography, are used to verify transactions in a permissioned blockchain. Encryption prevents unauthorized transactions and ensures the integrity of the data.
Use Cases for Blockchain Security
Blockchain technology offers many potential use cases for improving security in various industries and applications. The following are some of the most notable use cases of blockchain for security:
Cybersecurity: Blockchain can securely store and manage sensitive information, such as passwords and encryption keys. The decentralized nature of blockchain networks makes them resistant to tampering and hacking, and it is a better solution for the security of digital systems.
Supply chain management: Blockchain can track the movement of goods in the supply chain. It ensures that products are not tampered with or diverted during transit. This improves the overall security of the supply chain and prevents fraud.
Internet of Things (IoT) security: IoT devices are vulnerable to hacking and tampering. But the decentralized nature of blockchain networks makes them suitable for securing IoT devices. Blockchain ensures that data from IoT devices are stored and managed properly.
Election security: Blockchain can be used to improve the security of voting systems. It can be used to ensure that votes are counted accurately and election fraud is easily detected and prevented.
Healthcare: Blockchain can store and manage sensitive medical information. It is used to protect patients’ data ensuring that it is not tampered with or stolen. Blockchain helps to improve the overall security of the healthcare system.
In conclusion, blockchain security is a crucial aspect of the technology that must be considered to ensure the integrity, confidentiality, and privacy of data stored on the network. This is achieved through encryption algorithms, consensus mechanisms, and secure key management.
Despite the inherent security features of the network, blockchain is still vulnerable to attacks, such as 51% attack, double-spending, and malicious node behavior. However, blockchain is still an evolving technology, and as such regular security updates and audits are necessary to ensure network security and data protection.
Organizations can securely store, transmit, and manage their data with this powerful technology by taking the necessary actions to enhance the security of a blockchain network.
Bashir, I. (2018). Mastering Blockchain. Packt Publishing. Vitalik Buterin. [n. d.]. Ethereum’s White Paper: A Next-Generation Smart Contract and Decentralized Application Platform. ([n. d.]). De Filippi, P., & Wright, A. (2018). Blockchain and the Law: The Rule of Code. Harvard University Press. Swan, M. (2015). Blockchain: Blueprint for a New Economy. O’Reilly Media, Inc. NortonLifeLock. (2021, September 30). What is blockchain security? [Blog post].
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