Blockchain is often touted as a way to store information securely, but how secure is it? Although nothing is 100% secure, the blockchain is designed to be immutable, tamper-proof, and democratic. It accomplishes this more or less through three defining characteristics:
1. Decentralization
2. Cryptography
3. Consensus mechanism
The complex interaction between these features promotes the security of blockchain transactions. In this article, we will discuss the first and most famous blockchain: Bitcoin.
Decentralization: creating a single version of the truth
Traditionally, anyone who wants to store, share, or process information must own it. This includes creating, borrowing, or purchasing the information, obtaining permission to use it (if needed), and then making sure that everyone is aware of any changes. Does it sound confusing? Yes. Processing information in this way can easily become a complex phone game because there are hundreds of weaknesses and high margins.
On the other hand, the blockchain distributes the same information to every user (or node) on the network. When you make a change, the network verifies it, and then the miner (node ​​rewards to update the blockchain) adds the transaction to a new block.
Decentralization: the backbone of the blockchain. To change a block, you need to change each block before any new blocks are mined. Otherwise, the node will discover your fraud and discard your changes. Considering that there are thousands of nodes to confirm new blocks, it is unlikely that someone can beat their computing power to add a bad one.
Cryptography: the perfect disguise
If decentralization is the backbone of the blockchain, cryptography is the backbone-a complex mathematical algorithm that can divert attacks.
All data on the blockchain is encrypted; in other words, it is processed to hide its true identity. The hash value takes any input value and applies a mathematical algorithm (SHA-256 is used in Bitcoin) to generate a new value with a fixed length.
The hash value is similar to a password protection, a unique ID for sensitive data. Each block has a unique hash value, which comes from the transaction of the block (each transaction ID is also hashed) and the hash value of the previous block transaction. If you want to make retroactive changes to the block, then the entire system needs to be changed.
Your private key can be used for access so that people can send your bitcoins without stealing them.
The special thing about hash value is that it cannot be reversed. For example, you cannot use the public key and deduce the private key. In addition, a small change in the input value creates a brand new hash ID, which means that the fraudster cannot escape from making small changes without invalidating the entire block.
Consensus mechanism: We agree-yes?
The consensus mechanism is the brain of the blockchain. It decides which blocks to add by pitting nodes against each other in a Bitcoin prize crypto competition.
First, the node verifies whether the block complies with the preset rules of the Bitcoin blockchain. Then, the miners compete to solve an encryption puzzle based on the data contained in the block. When a miner solves this problem, they will share their solution with the network. If at least 51% of network nodes agree with this solution, then the block will be added to the blockchain.
This special consensus is called proof of work. It ensures that each block undergoes a complex, mathematical calculation process before it becomes an immutable part of the blockchain. This is labor-intensive and helps prevent criminal activity, and since the miners are rewarded with 1,250 Bitcoins for each solution, they will be motivated by the rules. But are they always like this?
Positive loopholes
The threat to the proof-of-work consensus model is a 51% attack. If more than 50% of mining power is owned by a small number of colluding nodes, they can prevent other nodes from adding new blocks, thus effectively controlling the network. This will make double spending and other types of fraud possible, but 51% of attacks do require a lot of energy and money to succeed.
Although this type of attack has not yet occurred on the Bitcoin mining pool GHash. IO exceeded 50% in 2014, but voluntarily reduced its mining capacity to maintain the integrity of the network. Other cryptocurrencies, such as Bitcoin Gold, are not so lucky.
Perhaps the most pressing blockchain vulnerability comes from how the blockchain interacts with other things. For example, smart contracts can automate many blockchain tasks, but they are only as good as the code they write. Strictly speaking, they are not part of the blockchain, but interact with it, so if the code is poorly written, hackers can infiltrate the smart contract and steal, change or transfer wealth (or information).
Similarly, a centralized organization that interacts with the blockchain may expose the network to risks. Hackers are only interested in big work with millions of dollars in danger, so they usually focus on a centralized repository with a single point of failure. This is a vulnerability they can exploit. A large part of today's cryptocurrency trading volume is conducted through centralized exchanges. Since 2011, nearly $1 billion worth of digital assets have been stolen.
Better but not perfect
Blockchain is still an emerging technology and continues to evolve over time. Most security vulnerabilities are quickly patched, and in extreme cases, they may lead to a new version of the blockchain known as a "hard fork." This is what Ethereum did when it stole $55 million worth of smart contracts from the DAO (Decentralized Autonomous Organization).
Taking all factors into consideration, blockchain is a better solution for storing and exchanging digital value, but it is not absolutely perfect. The important thing is that we need to continuously develop and improve the blockchain ecosystem to make it as secure as possible.
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