Why is blockchain secure?

Blockchain has been touted from the beginning as a highly innovative and promising technology when it comes to security. But is it really that safe? And how does that come about? As a matter of fact, there have already been several events that could cast doubt on this. In this article, we will tell you more about why blockchain is considered so safe and what dangers still lurk.

How does blockchain work?

Blockchain is basically a large network made up of all individual computers, which we call nodes. These nodes make the blockchain work; for example, they check that all transactions are correct, and they keep an eye on whether other nodes are doing their job properly. In the case of the public blockchain, anyone can contribute; all that is needed is a computer with sufficient power, the Internet and the ability to execute the associated code.

The execution of the code constitutes the acceptance of the rules of the management of the blockchain. These nodes are tasked with collecting transactions issued by users, assembling the transactions into a structure called a "block" and validating the blocks before adding them to the blockchain. The blockchain that is then created from this can be hundreds of gigabytes in size and is duplicated many times over the Internet, making the blockchain highly available.

Because anyone can participate, therefore, people with malicious intentions can also participate. Many transactions are stored on the blockchain, which means it is a great prey for criminals. Yet blockchain ensures that users do not have to worry about the security of their data.

What ensures the security of blockchain?

Blockchain is based on the following strong features that ensure it is a secure technology. These are the basic elements you'll see in every blockchain, no matter who created it. We will tell you the most important features that ensure the security of the blockchain.

Decentralized storage of data and the consensus algorithm.
The blockchain relies on a very large number of independent users (nodes) and is therefore decentralized by nature. This means that, unlike a centralized architecture where decisions can be made unilaterally, a consensus must be reached or more than 50% of the blockchain's computing power (computing resources) must be controlled in order to perform an action. Thus, any change to the blockchain must be approved among all the contributors to the blockchain, who must then update the executed software code. This is also called the consensus algorithm and is available in different types. For example, Bitcoin uses Proof of Work (PoW), while Ethereum will soon move to Proof of Stake (PoS). The developers of Ethereum find PoW, not that efficient and safe, which is the reason they chose to change to another consensus algorithm.

Transparency of algorithms offers better auditability
Every transaction, block and code are freely accessible and readable by anyone; as such, anyone can audit the system to ensure the proper functioning of the blockchain and the legitimacy of transactions. The advantage is that experts from the user community can critically review the code and warn when they think is something is not right. So, the trust is actually based on whistleblowers.

Secure underlying technologies
Cryptographic techniques and mechanisms ensure that the blockchain cannot be tampered with and that recorded transactions are authentic. Even if they are issued under a pseudonym. This ensures that once something is stored in the blockchain, someone cannot modify it later. Does that happen? Then all the nodes in the network will notice and take action against it.

The weaknesses of blockchain

Even though blockchain has several ways that make it a secure technology, it also has weaknesses. To understand how blockchain's security works, it is important to consider these as well.

51% Attack
Several organizations that contribute significantly to the operation of the blockchain can join forces and together control at least 51% of the blockchain's computing power. For example, China is known to concentrate a large portion of the computing power for the Bitcoin blockchain (namely, more than two-thirds in 2017). As a result, there are many people who question how decentralized the blockchain is and whether its governance is as neutral as it could be. In fact, the decision-making power is totally unbalanced at this point. When an organization owns more than 51% of the network, they can modify transactions, which impacts the history of the blockchain. Worse yet, they have such great power that they can modify the blockchain in the way they like.

Hard fork
When new updates are made to the blockchain and part of the network does not adopt these new updates, a split of the blockchain occurs. This is also called a "hard fork. This means that there will eventually be two different versions of the blockchain: one with the old software code, and one that contains an update to the software code. This doubling of the blockchain has the effect of calling into question the reliability of the two different blockchains and will cause the corresponding cryptocurrency to depreciate in value. It can also be noted that a hard fork sponsored as part of a 51% attack will be more likely to result in the adoption of the new updates because consensus will be more easily reached. In that case, it will be a soft fork.

Money laundering
This is maybe one of the most famous weaknesses of blockchain (when it comes to cryptocurrency). The content of the blockchain is inherently transparent, but the traceability of transactions can be noted as very complex, facilitating money laundering operations. Indeed, it is possible to open a very large number of accounts, use one-time accounts, for example, and carry out transactions under the cover of anonymity. This can cause blockchain to have a bad image, making potential users prefer not to use this technique.

Programming errors
Such programming errors can be made in smart contracts and programs that are automatically executed within the blockchain (dApps). This can have dramatic consequences for the blockchain industry.

For example: DAO saw an embezzlement of $50 million in 2016. The organization behind the blockchain, and who thus made these programming errors, would ideally like to ensure that these incorrect transactions are undone. This can be done by creating a hard fork, which the creators of DAO succeeded in doing, by the way.

Blocks that are registered as valid at a certain point in time in the blockchain are then invalidated, thus calling into question the reliability of the blockchain.

Conclusion

We can conclude that the blockchain is a very secure technique. It offers many features that are important for ensuring trust. For example, consider the decentralized storage of transactions, the consensus algorithm and the openness of everything stored in the blockchain.

However, there are also plenty of dangers lurking. Because when developers don't secure a blockchain in the right way extra security can be provided, unsafe events can occur. This causes confidence in the technology to drop, while in fact this is not necessary at all. After all, these errors are caused by the creators of the blockchain, and the technology has relatively little to do with it.