Blockchain is secured through various mechanisms, including advanced cryptography and mathematical models of decision-making and behavior. Blockchain technology is the infrastructure of most digital currency systems, which prevents digital currencies from being copied and destroyed.

Blockchain technology is also particularly important in other contexts where data immutability and security are critical, including recording and tracking charitable donations, medical databases, and supply chain management.

However, blockchain security is far from a simple topic. Therefore, it is critical to understand the basic concepts and mechanisms of these innovative systems to provide strong protection for blockchain.


The concepts of immutability and consensus

While there are many characteristics of security associated with blockchain, two of the most important are consensus and immutability. Consensus refers to the ability of nodes in a distributed blockchain network to agree on the true state of the network and the validity of transactions. The process of reaching consensus usually depends on the consensus algorithm used by the network.

On the other hand, immutability refers to the fact that blockchain can prevent confirmed transaction records from being changed. Although these transactions are usually related to the conversion of digital currencies, sometimes they also refer to the process of recording other non-monetary forms of electronic data.

In general, consensus and immutability provide the basic framework for data security in blockchain networks. The consensus algorithm ensures that all nodes follow the system rules and recognize the current state of the network, while immutability ensures the integrity of each block data and transaction record that has been verified for validity.


The role of cryptography in blockchain security

Blockchain mainly relies on encryption technology to ensure data security. Cryptographic hash functions are the key to this technology. Hash is a calculation process, and a hash algorithm is an algorithm (i.e., a hash function) that can input data of any size and output a predictable and fixed-size hash.

No matter the size of the input data, the output is always the same bytes. But if the input changes, the output will be completely different. As long as the input does not change, no matter how many times you run the hash function, the output hash value will always be the same.

In a blockchain, these output values, or hashes, are unique identifiers for blocks of data. Each block's hash is generated relative to the hash of the previous block, which is what links blocks together to form a blockchain. Additionally, the block hash is determined by the data contained in that block, which means that any changes made to the data will change the block hash.

Therefore, the data of the block and the hash of the previous block together determine the hash of each block. These hash identifiers play an important role in ensuring the security and immutability of the blockchain.

Hash functions are also used in consensus algorithms that verify transactions. For example, on the Bitcoin blockchain, the Proof of Work (PoW) algorithm uses a hash function called SHA-256. As the name suggests, SHA-256 inputs data and outputs a hash value that is 256 bits or 64 characters long.

In addition to providing protection for transaction records in distributed ledgers, cryptography can also play an important role in the security of wallets that store digital currencies. For example, pairs of public and private keys allow users to receive and send digital currencies using asymmetric or public key cryptography, respectively. Private keys are used to generate electronic signatures required for transactions, thereby verifying the ownership of the currency sent.

While the details are beyond the scope of this article, the properties of asymmetric cryptography prevent anyone other than the private key holder from accessing funds stored in a cryptocurrency wallet, thus ensuring that the funds are secure until the owner decides to spend them (as long as the private key is not shared or leaked).


Cryptoeconomics

In addition to cryptography, a relatively new concept called cryptoeconomics also plays an important role in maintaining the security of blockchain networks. It is closely related to the research field of game theory, which uses mathematical principles to simulate the decisions made by rational actors in a situation with established rules and rewards. While traditional game theory can be widely applied to a range of business cases, cryptoeconomics also independently models and describes the behavior of nodes on a distributed blockchain system.

In short, cryptoeconomics is the study of the economics of blockchain protocols, and how their design principles can produce different outcomes based on the behavior of their participants. Cryptoeconomic security is based on the model that blockchain systems provide greater incentives for nodes to act authentically rather than maliciously or incorrectly. Again, the Proof of Work consensus algorithm used in Bitcoin mining is an excellent example of providing this type of incentive.

When Satoshi Nakamoto proposed the framework for Bitcoin mining, it was intentionally designed to be an expensive and resource-intensive endeavor. Due to its complexity and computational requirements, PoW mining involves a large investment of money and time — regardless of the location and user of the mining node. As a result, this structure provides strong protection against malicious activity and provides incentives for honest mining behavior. Malicious or inefficient nodes are quickly eliminated from the blockchain network, while genuine and efficient miners have the potential to receive large block rewards.

Likewise, the balance between risk and reward can be achieved by placing a majority of a blockchain network’s hash rate in the hands of a single organization or entity, thereby preventing potential attacks that could undermine consensus. A 51% attack, as it is known, could be extremely damaging if successful. Given the competitive nature of proof of work and the size of the Bitcoin network, the likelihood of a malicious user gaining control of a majority of nodes is very small.

In addition, in a huge blockchain network, the computing power consumed to achieve a 51% attack will be an astronomical figure. Therefore, this huge investment and relatively small potential return gap also have a direct inhibitory effect on the occurrence of the attack. This also contributes to a typical feature of the blockchain, namely Byzantine Fault Tolerance (BFT), which shows that even if some nodes are damaged or malicious behavior occurs, the distributed system can still continue to work normally.

As long as the cost of generating a large number of malicious nodes is too high and real mining activities can be better incentivized, the system can continue to grow without resistance. However, it is worth noting that relatively small blockchain network systems are vulnerable to attacks because the total hash rate used for these systems is much lower than the hash rate of the Bitcoin network.


Summarize

By combining game theory and cryptography, blockchains are able to achieve higher security as distributed systems. However, as with almost all systems, it is crucial to correctly apply these two areas of knowledge. The balance between decentralization and security is essential to building a reliable and effective digital currency network.

As blockchain continues to develop and expand, its security systems will also change to meet the needs of different applications. For example, private blockchains developed for commercial enterprises now rely more on the security provided by access control, which is very different from the game theory mechanism (or cryptoeconomics) used by most public blockchains.