How does blockchain work?
Blockchain technology manufactures a structure of data that inherits security qualities. It stands on principles of decentralization and consensus, cryptography, that ensure trust in the transactions.
Mostly, in blockchains or other distributed ledger technologies, the data is formed into blocks and each of those blocks contains one or a bundle of transactions. When new blocks come in, they connect to all the blocks before them in a cryptographic chain in a way that it’s almost impossible to interfere with. All the transactions within the blocks are verified and agreed upon by a consensus mechanism, making sure that each transaction is correct and true.
Decentralization in blockchain technology is enabled through the participation of users across a distributed network. In a simpler way blockchain is created to let people (who don’t trust other people) share their valuable data in a secure and interfere-free way.
Blockchain uses math and innovative software rules to store data, and they are very difficult for hackers to manipulate.
How does security vary by blockchain type?
Blockchain networks can vary in a way of who has access to the data, and who can join. Networks are usually marked as private or public, which further tells us who is allowed to join, who has permission or who is permissionless, and how the users get access to the network.
Public blockchain networks usually allow anyone to join and for the existing users to stay anonymous. A public blockchain uses simple internet-connected computers to verify transactions and reach consensus. The most popular example of a public blockchain is probably Bitcoin.
On the other hand, private blockchains use identity to authenticate membership and access privileges. The organizations form a private business network, only open to members. A private blockchain in a network that has permission, reaches consensus via a process called a selective endorsement, where users that are known verify the transactions.
Only those members who have special access and permissions can carry on in the transaction ledger. This type of network requires more access and identity controls.
When building a blockchain application, it’s crucial to evaluate which type of network will best fit your business goals. Permissioned and private networks can be very controlled and preferable for agreement and regulatory basis. However, permissionless and public networks can gain greater distribution and decentralization.
Even though blockchain is not immune to hacking, being decentralized gives blockchain an advantage against hackers and scammers. To make changes to a chain, a hacker more than half of all the computers in the same ledger. However, even though it may seem impossible, it can happen.
Fraud and cyberattacks
Unlike blockchain technology that produces an interfere-proof ledger of transactions, blockchain networks are not that immune.
It can easily be manipulated because of its known vulnerabilities in infrastructure and can be hacked or used for fraud. Blockchain networks can be threatened in four ways. Those are:
- 51% attacks
Phishing is an attempt to obtain a user’s credentials. The scammers usually send wallet key owners an email that looks like they are coming from a legitimate source.
The email requests from users for their credentials using fake hyperlinks. If a scammer is having access to a user’s credentials and some other pieces of information that are sensitive, it can result in losses for both the blockchain network and the user.
Blockchains depend on real-time and large data transfers. Hackers can cut off data as it’s transferring to internet service providers.
When a routing attack happens, blockchain users usually can’t see the treat, so they think everything is normal, and it looks normal. But in fact, scammers have already extracted currencies or confidential data.
When these attacks occur, scammers create and use many untrue network identities to overrun and crash the system. The name Sybil comes from a famous book character with a multiply identity disorder.
Mining for cryptocurrencies requires a fair amount of computing power, mainly for public blockchains. But when a group of miners, for example, gather enough resources they could reach more than 50% of a blockchain network’s mining power.
This means that whoever has more than 50% of the power they have control over the ledger. However, private blockchains are not at risk from these attacks.
When undertaking a blockchain application, it’s important to examine security at all levels of the technology stack, and how to manage authority and permissions for the network. A full-scale security strategy for an enterprise blockchain solution consists of using some more traditional security controls, and unique technology controls.
Here are some more specific solutions;
- key management
- data privacy
- identity and access management
- smart-contract security
- transaction endorsement
- secure communication
When setting up a private blockchain, you have to make sure that it’s going to be deployed in resilient, secure infrastructure. Poor choices for business processes and needs usually lead to many data security risks.
In order to understand why blockchain doesn’t allow to manipulate or delete old blocks, we have to take a good look at its data structure, and we need to understand the basics of hashing.
A hash value, or cryptographic hash, of a data set, is actually calculated using a hash function. It has some important properties like; how the output is a string of fixed length, it is impossible to find two datasets that share the same value if the original data set changes at all, it maps a whole new hash value, it’s a one-way mathematical function, meaning that the original document cannot be recalculated, or manipulated.
Simply, a hash value stands for a data set in the same way as our fingerprints represent us as persons. Areas of application include credit card transactions, secure surfing on the internet, and password storage.
So there are a lot of libraries to calculators which quickly calculate hash values without much effort. What makes blockchain safe is also that the whole system makes all the transactions irreversible, meaning once the block is created on the chain you cannot modify it.
As mentioned before, you can always add information to it. This actually restricts people to reverse or modify any transactions that have already taken place.
Blockchain security is actually about understanding the risks of the blockchain networks and how to manage them. For implementing security to these controls, you have to make up a blockchain security model.
That model should be made for all the measures to be in place in order to secure blockchain solutions in the right ways. Blockchain security is both a concern and a great strength and as with most other technologies, it’s not entirely immune to fraud.
Paying with crypto, crypto leading, and investing in crypto is absolutely anonymous and protected, because of the way blockchain technology is actually built.
Users can protect themselves by storing private keys and not falling for phishing emails and giving away their personal and confidential information. Blockchain has great potential, as two major banks from Australia successfully use blockchain for bank guarantees in relation to property leasing.
Its encrypted and irreversible data blocks are of great help in the fight against cybercrime. In short, this technology can be trustworthy, robust, secure, and private. The security is guaranteed by solid architecture, effective workflow policies, and secure design practices.
All things considered, blockchain is the best solution to store and exchange data. And the important thing is that it keeps developing and improving.