Cryptonomics: Blockchain Security Explained

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.

January 31, 2021

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, if valid, 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. The largest host of smart contrasts e.g., the exploitation on an unforeseen quirk in a smart contract code written on the Ethereum blockchain which resulted in the loss of 3.6 Million Ether worth around $80 million at the time from Decentralized Autonomous Organization (DAO), a type of blockchain-based investment funds, including hacks and exploitations that have greatly bedeviled the Defi community.

Also, there is the growing concern of 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.

Final Thoughts

There is nothing in existence that is perfect, something that contains no forms of loopholes. The chances of such loopholes getting exploited leaves a feeling of grave danger for a community that largely depends on and interact with the blockchain network, but a crucial aspect that has left everyone feeling really confident, remains the unhackable nature of the blockchain; in actual sense, it hasn’t known any type of successful attacks. However, research is currently ongoing to reduce smart contract networks’ exploitative tendencies, the only weak link in blockchain technology. For those who wish to learn more about smart contract risks, check ou the following sources:

How To Spot a Potential RUG — Clear signs something is sketchy

How to Keep Your Funds SAFE — MetaMask Guide

Liquidity Siphon Rugpulls on The Binance Smart Chain

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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.