Blockchain Security: An In-depth Analysis
Blockchain is a decentralised ledger system distributed across computer systems to engender trust and confidence in an environment. But how does network security work?
What is blockchain security?
Any specified nodes or members who can record, distribute, and view encrypted transactional data on their blockchain have access to information.
Blockchain technology collects and stores information in groupings known as "blocks," with each block holding a specific quantity of data. When an entire block is reached, it is connected to the previous full block, forming a data chain, hence the name “blockchain".
Blockchain security can be defined as a comprehensive risk management system for blockchain networks that includes assurance services, cybersecurity standards, and best practices to reduce the risk of fraud and cyber-attacks.
Since blockchain data structures are based on consensus, cryptography, and decentralisation principles, they have intrinsic security properties. Each new information block connects to all preceding blocks, so tampering is practically impossible. Furthermore, all transactions inside a block are checked and agreed upon by a consensus process (authorised users), ensuring that each transaction is truthful and correct. As a result, there is no single point of failure, and a user cannot modify transaction records.
What are the types of blockchains?
Private blockchains are used by businesses to build up a permissioned network. Private blockchain networks require invitations. Users must be validated by the network's central administrator or initiator or by a rule set implemented by the administrator. Permissioned networks restrict who may join the network and what kinds of transactions they can initiate. In any case, people must be invited or have permission to participate.
Private blockchains usually employ a Proof-of-Authority (PoA) consensus strategy. They are frequently utilised in internal, business-secure contexts to manage access, authentication, and record-keeping activities. Typically, transaction data is kept confidential.
The focus of public blockchains is on participation and transparency. Transaction consensus is "decentralised", meaning anybody can validate their network transactions, and that the software code is open-source and freely available to the public.
The key feature of public blockchain networks is decentralisation via cryptoeconomics, designed to ensure collaboration across a dispersed network. It indicates that the network has no political centre of control and that the software system architecture has no architectural central point of failure in public blockchains.
The amount of decentralisation in a blockchain is determined by the design of the consensus algorithm, network governance, ownership of cryptographic "private keys", and the provision of economic incentives. Consider the idea of "data mining", in which users earn Bitcoin by confirming transactions. This incentive encourages users to join the network and engage in transaction validation.
Governance issues include who produces the software code, who may engage in the consensus method, and who can participate in the community governance tasks that keep the network running. The majority of public blockchain consensus techniques are Proof-of-Work (PoW) or Proof-of-Stake (PoS).
Regarding access, anybody may join and validate transactions, which is the primary distinction between public and private blockchains.
Generally, only public and private blockchains come up while discussing blockchains. There is, however, a third option: consortium blockchains. They comprise recognised players pre-approved by a central authority to participate in blockchain network consensus. This "semi-permission" strategy allows a network to be dispersed or partially decentralised while maintaining some control over it.
Transaction data on consortium blockchains may be kept private.
Consortium blockchains can establish an agreement by "PoW, PoA), or PoS. There are also alternative ways available, such as delegated PoS.
Consortium blockchains are ideally suited for banking, supply chain management, and Internet of Things (IoT) applications.
Blockchain security challenges
Blockchain has its challenges. Cybercriminals may exploit blockchain weaknesses and do significant damage. Examples include:
Blockchains rely on massive data transfers that occur in real-time and routed attacks. Hackers with ingenuity can intercept data on its route to ISPs (Internet Service Providers). Regrettably, blockchain users are unaware of any issues.
Mining on large-scale public blockchains requires a vast amount of computational power. A gang of unethical miners can seize control of a ledger if they can pool enough money to obtain more than 50% of a blockchain network's mining power. Private blockchains, on the other hand, are not vulnerable to 51% of assaults.
Sybil launches an attack. Sybil's assaults, named after the book on multiple personality disorder, flood the target network with excessive bogus identities, breaking the system.
Phishing attempts. Phishing is a fraud in which cybercriminals send phoney but convincing-looking emails to wallet owners to get their credentials. This old hacker trick also works with blockchain.
Six blockchain security examples
Here are a few examples of how companies and organisations conduct blockchain security.
This cryptocurrency firm, located in California, is creating a safe, user-friendly cryptocurrency for businesses that cannot afford to adopt ledger security measures independently. The cryptocurrency used by Mobilecoin substitutes third-party transaction providers, with all transaction data encrypted on both ends. The app is compatible with Facebook Messenger, WhatsApp, and Signal.
Coinbase is another cryptocurrency firm situated in California. It is a digital currency exchange where you can buy and sell digital money. Coinbase operates solely on encryption and saves wallets and passwords in a secure database. To guarantee bitcoin safety, employees must go through a thorough background check.
J.P. Morgan is the largest and most well-known banking firm in the US. It has created Quorum, an enterprise-focused version of Ethereum that uses blockchain technology to conduct private transactions. J.P. Morgan employs smart contracts on its Quorum network to make visible and cryptographically secure transactions.
This defence contractor, based in the US, is the first to incorporate blockchain security. Lockheed Martin and the cybersecurity firm Guardtime Federal collaborate to implement blockchain cybersecurity protocols in engineering systems, software development, and supply chain risk management. The objective of Lockheed Martin is to employ blockchain to secure every step of its weapon development processes.
This California-based software juggernaut believes blockchain is suitable for the IoT because the intrinsic ledger technology eliminates single points of failure and encrypts essential private data. This concept is crucial since the IoT has been rapidly expanding. If blockchain technology becomes the dominant IoT network, its visibility and utilisation will increase. Of course, having a major IoT player on your side can't hurt!
This healthcare innovation start-up in Tennessee intends to assist the healthcare industry using blockchain technology. Hashed Health has collaborated with several hospitals and healthcare organisations to create secure digital blockchain networks for patient information exchange and certain internal communication channels.
The company has three divisions: Hashed Collective, Hashed Enterprise, and Hashed Labs, with each focusing on a distinct area of blockchain.
Author: Emmanuel Baiden
7 years experience within the financial services sector most notably in Sales, Trading, research and writing articles within the crypto space. I have a bachelor's degree in International Business and a Master's in Investment and Risk Finance . I am also an associate member of the Chartered Institute for Securities and Investment.