If you have previously come around the idea of decentralization or cryptocurrencies such as Bitcoin and Ether, then the chances are that you have heard about blockchain technology. It is a revolutionized way of dealing with not only finance but bookkeeping, education records, health, and medical organization or developing digital contracts between two parties without the need for an intermediary or a centralized system. Blockchain is a rather powerful technology that is basically used to protect the integrity of the information that it holds may it be cryptocurrency, transactional history for dedicated crypto, non-fungible tokens, or any other type or kind of information which is enclosed on it.
Many times blockchain technology has been referred to as the safest and most secure technology to ever retain information, but it doesn’t necessarily mean that it is entirely safe and foolproof. The adoption of cryptocurrencies and decentralization in the recent past has put a lot of eyes on blockchain technology as people finally realize that it has more potential use cases other than only being consumed might by financial companies and enterprises.
Crypto investors and traders constantly do business on different blockchains, whether it is the purchase of new cryptocurrencies, selling the old ones out, or using it to launch multiple non-fungible tokens. The end game is that the overall use case for blockchain technology has intensified, and it continues to see more growth as time passes.
How does Blockchain Technology Work?
If you truly want to understand the working of blockchain technology, then you have to see the whole concept as a more relatable one, such as the Internet itself. Think of Google, a search engine that people use on a daily basis around the clock to get their hands on the latest information and news from all over the globe. All of the data that Google transmits or interprets is stored in secure server rooms scattered all around the globe.
It can be said that whatever information you are seeing from Google comes from a centralized source. Blockchain technology, on the other hand, is just like the usual Internet, but it doesn’t have a centralized storage space or a platform from where the whole thing is being controlled. It relies on the working of a decentralized network that is scattered around the globe and has multiple nodes in the form of people staking their computational powers to power the blockchain technology; no single entity has control over the blockchain technology.
This decentralized ledger is hosted on multiple nodes out there which are able to track, interpret and validate multiple transactions taking place over a single blockchain in a synchronized manner. That is why it is different from the centralized exchanges or monetary systems that are able to track and record everything because of the fact that they are in control of the whole system.
Each and every transaction that gets validated on a decentralized blockchain is then employed into a block, and the block, in turn, is added to the blockchain in a beadlike formation that is consistent and continuous. The blockchain in itself is immutable, and the blocks that are stacked on the chains are append-only, which means no one can delete or change the information present within the blocks. This makes blockchain technology one of the safest and most secure entities out there. Since nodes are in charge of managing and validating transactions, there isn’t really a need for a third-party broker or an intermediary of any kind to help with the validation process.
Is Blockchain Technology Immune to Hacking?
If complete immunity is being talked about here for blockchain technology against hacking, then it sure isn’t the case. Anything that is digital and can be accessed via the Internet has a fair chance that it could be hacked. Blockchain technology receives quite an edge when it comes to hacking because of the fact that it is completely decentralized, consisting of multiple nodes that is why it is not that easier to hack. If a hacker has to gain access to the contents of a blockchain, then the chain itself needs to be altered, which means the hacker should have control of more than half of the computing nodes on a distributed Ledger. It might seem impossible at first but it can be done, yet it is highly unlikely.
Another amazingly weird concept of decentralized networks is adding more users to the pool for the sake of increasing the security of the network. Many blockchains out there, such as Bitcoin and Ether, are quite public, which means that anyone with access to the Internet and a computer can join these distributed ledgers, and having more people on board actually helps in strengthening the blockchain rather than weakening it.
The very concept behind this is the validation of transactions taking place between multiple users if more nodes are present and, in fact, online then it means that there are more users to validate each other’s work more profoundly and fewer chances of an error, other than that these will be able to capture a doubtful activity taking place on the blockchain quickly and more conveniently.
Difference Between Permissioned and Permissionless Blockchains
There isn’t much rocket science that is going on here as the difference between the two is clear as a day and could be constructed from the words themselves. The permissioned or private blockchains are those that require an invitation from the users who wish to join as these are closed systems. Many businesses such as private limited companies, banks, and other financial enterprises want dedicated control over the data that these houses may benefit from a permissioned blockchain because this way, they would be able to restrict potentially unknown outsiders from joining the network.
Ripple blockchain is a dedicated example of permissioned blockchains, which was developed in the first place by the banking community for the sake of making low-cost transactions, and it is a closed system. On the other hand, permissionless blockchains are those that are open and anyone who wishes to join doesn’t require an invitation because the whole blockchain is public.
Anyone can transact on these blockchains without asking for permission, and these blockchains don’t have centralized control over them. The data is repeatedly copied around the clock and these copies are stored on multiple nodes around the world whereas the people who take part in the transactions would partly or completely remain anonymous. Examples of these kinds of blockchains include Bitcoin, Ether, Litecoin, and Dash.
How do Miners Keep the Security of the Blockchain Tight?
Miners play a very decent role in strengthening the overall security for blockchains out there. As the adoption of Bitcoin and many other cryptocurrencies is increasing at a significant rate, the process of mining is becoming more subtle and common. Miners are people who are in charge of validating the transactions that take place on a dedicated blockchain, and after validating these transactions, the miners have to compile whole data in the form of a block and then subject the block to the blockchain. They receive crypto tokens as a fee for taking part in the validation of transactions taking place on the blockchain. Mining is extremely necessary for blockchain technology because it is a way of validating transactions and making sure that no error is being made, either digital or manual and that the transaction is genuine, which leads to strengthening the integrity of the blockchain itself.
Another reason why the validation of transactions takes place with the help of miners is that they want to make sure that transaction that has commenced recently is indeed in line with the very code of that particular blockchain. There are two different consensus algorithms that are being used for the sake of validating transactions and are known as proof of work and proof of stake. Both have their own use case and are used by a number of cryptocurrencies out there.
Prevention of Double Spending
Double spending attacks are a significant concern for the whole crypto community because these are outright outrageous and frustrating for miners and the blockchain network itself. In these types of attacks, the user has the opportunity to spend their crypto more than once, and that is why these attacks must be stopped before these cause havoc on the blockchain. Double spending is not a problem with conventional or fiat money because if you have spent $10 to buy a burger, then you no longer have that $10 again to spend.
But in the case of cryptocurrencies, a dedicated quantity of crypto is only taken off from someone’s wallet as depicted in the records that are duplicated between all blockchain nodes if the transaction in dialogue was validated by one of the nodes or miners. If the transaction has not been validated and the person has already used a dedicated amount of crypto, but no record of it can be found on the blockchain, then they can use it, again and again, which will cause havoc on the entire blockchain network.
But blockchain technology doesn’t allow it to happen because a consensus needs to be reached in the order of the transaction for the sake of confirming the latest one, and as soon as the transaction is approved, the data is posted publicly, and each and every node updates the copy of the Ledger including the data for the transaction in question.
This way, double spending can’t happen or becomes extremely impossible; Bitcoin was the first cryptocurrency to ever solve the problem of double-spending. It also goes to show how competent blockchain technology is in preserving the integrity of not just the cryptocurrency itself but keeping the records flawless and immutable. Even if someone was to spend a dedicated amount of Bitcoin by sending it to two different recipients at the same time, then both of these transactions would first land into the pool of unconfirmed ones, and nodes will verify the integrity of these transactions.
Two different transactions originating from the same amount of crypto of the same user present the blockchain with a conundrum that needs to be solved. Out of these two transactions, the first one, which gets validated by the miners and is confirmed, would get added into the next block that is to be placed on the blockchain. The second transaction that is connected with the same block within the chain that was already added and has become part of the blockchain would fail to get fit within the block, and it will be discarded immediately.
Security Risks Associated with Blockchain Technology
Blockchain technology enjoys a double layer of security, the first layer of security is from the blockchain itself, and the second layer comes from the network of nodes out there validating the transaction for the blockchain, thus strengthening its operation. But even so, there is a likability that blockchain could get compromised; the following are some of the risks associated with blockchain technology;
The benefit of blockchain technology is also a potential risk when it comes to its own security. When someone wishes to send cryptocurrencies from one place to another, there is no need for an intermediary or a broker of any kind because the whole thing is autonomous. A request gets filled, the nodes validate the transaction, and the money is sent just like that.
But at the same time, blockchain technology is extremely agnostic about both the sender and receiver. It doesn’t impose a direct risk to the crypto assets or the information involved, but there can be issues later. Multiple critics of Bitcoin and other cryptocurrencies say that cryptocurrencies are used by criminals and people who are under the radar of many States, and on their watch list, it is also used for money laundering and other such things.
The very criticism proposed by many over the use of decentralization and cryptocurrencies has lit up the interest of regulators trying to oversee the whole situation and regulate the use of cryptocurrencies. It is also assumed that there will be new laws drummed up regarding blockchain technology and decentralization in the future.
High Costs for Maintenance
Many critics have pointed towards the high-cost fees that are incurred for the sake of maintaining the networks that, in unison, make up the blockchain technology for a dedicated cryptocurrency. Mining leads to the minting of new tokens and strengthening the security of the whole network, but at the same time, it draws an enormous amount of energy. The total amount of energy that is only powering the Bitcoin network is just out of the charts, and if soon a certain fix is not applied, then the cost of electricity to maintain blockchain technology as adoption for Bitcoin and many cryptocurrencies is only going to go higher making it difficult to manage the blockchain network.
The incentive for these validators or miners is to be paid at the end of the task in the form of a crypto token which they are helping to validate in the first place. But in the immediate future, if the price of the token becomes lower or the price of electricity goes higher, then these miners would come at the crossroads and would eventually leave the game for good because it won’t be worth it anymore.
Rise of Hacking Activity
Given all the security a dedicated blockchain itself has, and what the nodes provide and with the consensus, decentralization, and cryptography, one would presume that no hacking activity could take place at all and hackers won’t be able to meddle with the affairs of the blockchain, but alas this is not the case.
All of this only makes sure that the transactions that are taking place on the network are genuine, properly validated, and recorded in real-time, but sadly it doesn’t keep hackers off the bay. Over the years, hackers have found many ways to defraud the system and have their way even with the blockchain technology intact, and the number of attacks and cyber activities continues to grow year by year.
One of the main issues with all of this is phishing. Phishing is where scammers and people with bad intent would send someone emails that look genuine but are riddled with bugs and malicious software as a try on their part to gain access to the very key credentials of a crypto user, which they can later use to access their private funds present on the blockchain.
So it seems that only tucking away your cryptocurrency is not going to forecast breezy skies for you because you have to be vigilant regarding the information that leads to your cryptocurrency. Another possibility that is presumed to be dangerous is if a single miner or a group of miners in the future become able to gain control of over 50% of the network’s mining power, they will have complete control over that dedicated ledger or blockchain.
These are only concerns, and some of these are things that are actually taking place in reality, and believe it or not, the security of blockchain technology is at stake if these go unnoticed or if a dedicated fix is not rolled out for each and every one of these in the future. Users also have to play their own part in securing their data and private keys and not tending to phishing emails, and at the same time, specific blockchains out there also need to update themselves with the best of the cryptographic program or algorithms available.
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