A blockchain is a distributed database or ledger where transactions are validated and recorded across multiple nodes.
Blockchains validate and record transactions as well as secure on-chain data and billions of dollars worth of digital assets.
At the time of writing, data obtained from coinmarketcap puts the total value of all cryptocurrencies by market cap at $1.61 trillion. While the market cap of all NFTs is $5.03 billion.
Blockchains are the underlying infrastructure of these cryptocurrencies and other on-chain digital assets and data.
Some of the threats faced by blockchains include Sybil attacks, 51% attacks, double spending attacks, these attacks have devastating effects that can lead to loss of assets and compromise an entire network.
In this article, we will explore the features that make a blockchain secure.
First we have,
Blockchain networks are not controlled by a single entity or authority, instead, they operate across a network of computers called nodes.
In a public or permissionless blockchain where anyone can run a node, more nodes means more decentralization.
This not only creates redundancy but maintains the fidelity of the data because if anyone tries to alter a record at one instance of the database, the other nodes would prevent it from happening.
This ensures that all the nodes within a distributed blockchain agree on the validity of a transaction and the true state of the network. The method used to achieve this is known as consensus algorithms.
The two most popular consensus algorithms are Proof-of-Work (PoW) and Proof-of-Stake (PoS).
Proof-of-Work is used by Bitcoin and it relies on computational power to
validate blocks after which the owners of the nodes get block rewards.
Proof-of-Stake allows interested individuals to become validators by staking some amount of the native coin of the blockchain. Ethereum uses this consensus.
Both consensus mechanisms make it very expensive for an individual or entity to operate multiple nodes.
Therefore it is unlikely for one person/group to launch a devastating Sybil attack or compromise other genuine nodes.
Immutability refers to the ability of blockchains to prevent alteration of transactions that have already been confirmed. As a result, once a block is added to the blockchain, its content becomes immutable i.e. it cannot be changed or altered.
This enables a high degree of data integrity, which leads to increased trust and reliability.
Cryptography is employed in blockchain to secure data, ledgers, smart contracts and wallets used to store coins and NFTs.
Blockchain makes use of two types of cryptographic algorithms, they are:
Hashing is a process whereby an algorithm receives an input of data of any size and returns an output called ‘hash’.
This hash(output) contains a predictable and fixed length of data regardless of the input size, the output will always present the same length.
The hash of each block is generated about the hash of the previous block.
That means, each block that is added to the blockchain is generated based on both the data contained within that block and the hash of the previous block and that is what creates a chain of linked blocks.
Because of this if data were to be manipulated, the hash values on subsequent blocks would change as well, creating a domino effect as hash acts as block identifiers. Thus playing a major role in ensuring blockchain security and immutability.
The downside to this is that human errors are irreversible if a person sends tokens to a wrong address that transaction is irreversible.
Blockchains employ this to create public and private keys, along with digital signatures.
A public key serves as a wallet address, accessible to all, while the private key is securely guarded to prevent unauthorized access to cryptocurrency assets.
This security ensures the safety of assets in a wallet until the owner chooses to use them, as long as the private key is not compromised.
Information sent to an address is encrypted with its public key and can only be decrypted by the corresponding private key.
Importantly, deriving the private key from the public key is not possible.
Digital signatures are encrypted using the user's private key, making them impossible to forge.
In transactions, a request is hashed and encrypted with the sender's private key, forming a secure digital signature.
There are two main types of blockchains, public and private blockchains.
Private blockchains are not decentralized, anyone can not run a node and their codes are not open-sourced. They might be controlled by an organization or by a group of individuals. To run a node on this type of chain you need permission from the people in control of it.
Public blockchains are decentralized and anybody that can afford it can set up a node and run the network. Their codes are usually open sourced and they rely on DAOs or voting for any changes/updates to the network.
Of course, there is no incentive for a private blockchain to be transparent so we will focus on public blockchains in this section.
In public networks like Bitcoin and Ethereum, all on-chain transactions can be seen either via nodes or through blockchain explorers.
The identity of users are covered with wallet addresses. This is how public blockchains remain transparent and users maintain anonymity.
To keep the blockchain running blockchains rely on nodes, these nodes validate transactions on the network by running the consensus algorithm.
They are rewarded with native coins or tokens of the particular network, this is what encourages validators and miners to keep on running nodes.
Recall more nodes means more decentralization. Therefore public layer-1 blockchains usually have native tokens.
Combined, consensus, immutability, decentralization, native tokens and cryptography provide the framework for data and transaction security in blockchain networks.
While consensus algorithms ensure that the rules of the system are being followed and that all parties involved agree on the current state of the network, immutability guarantees the integrity of data and transaction records after each new block of data is validated, this validation is carried out by various individuals running nodes on the network who are incentivized by block rewards which are native tokens of that blockchain.
In being transparent, most blockchains are open sourced which means their codes are publicly available.
Unfortunately, malicious actors and hackers are also part of the general public and they equally have access to these codes, scavenging for loopholes and vulnerabilities.
Nonetheless, Hashlock, Australia’s leading blockchain security and smart contract auditing firm is here to protect your blockchain infrastructure as well as your smart contracts from malicious actors and hacks.
Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.]
Author: Godwin Okhaifo