Blockchains are secured using various mechanisms, including advanced cryptographic methods and mathematical models of behavior and decision-making. Blockchain technology is the basic structure of most cryptocurrency systems and prevents the duplication or destruction of such digital money.

The use of blockchain technology is also being explored in other contexts where data immutability and security are highly valued. A few examples are charitable donation registration and tracking, medical databases, and supply chain management.

However, blockchain security is far from a simple topic. Therefore, it is important to understand the basic concepts and mechanisms that ensure reliable protection of these innovative systems.

Concept of immutability and consensus

While many features play a role in blockchain security, two of the most important are the concepts of consensus and immutability. Consensus refers to the ability of nodes to agree on the true state of the network and the validity of transactions in a distributed blockchain network. As a rule, the process of achieving consensus depends on so-called consensus algorithms.

On the other hand, immutability refers to the ability of blockchains to prevent already confirmed transactions from being altered. Although these transactions often involve the transfer of cryptocurrencies, they may also involve the recording of other non-monetary forms of digital data.

Taken together, consensus and immutability provide the foundation for data security in blockchain networks. While consensus algorithms ensure that the rules of the system are followed and that all involved parties agree on the current state of the network, immutability ensures the integrity of data and transaction records after each new block of data is validated.

The role of cryptography in blockchain security

Blockchains rely heavily on cryptography to keep their data secure. In this context, so-called cryptographic hash functions are of fundamental importance. Hashing is a process in which an algorithm (hash function) takes input data of any size and returns a result (hash) containing a predictable and fixed size (or length).

Regardless of the size of the input, the output will always have the same length. But if the input changes, the output will be completely different. However, if the input does not change, the hash result will always be the same no matter how many times you run the hash function.

In blockchains, these raw values, known as hashes, are used as unique identifiers for blocks of data. The hash of each block is generated with a link to the hash of the previous block, and this is what creates a chain of linked blocks. The hash of a block depends on the data contained in that block, which means that any change made to the data requires a change to the hash of the block.

Therefore, the hash of each block is generated based on the data contained in this block and the hash of the previous block. These hash IDs play an important role in ensuring the security and immutability of the blockchain.

Hashing is also used in consensus algorithms, which in turn are used to verify transactions. For example, in the Bitcoin blockchain, the Proof of Work (PoW) algorithm uses the SHA-256 hash function. As the name suggests, SHA-256 takes input and returns a hash that is 256 bits or 64 characters long.

In addition to securing transaction records in ledgers, cryptography also plays a role in securing the wallets used to store cryptocurrency units. The public and private key pairs, which respectively allow users to receive and send payments, are created using asymmetric cryptography or public key cryptography. Private keys are used to create digital signatures for transactions, allowing for proof of ownership of the coins being sent.

While all the details cannot be covered in this article, the nature of asymmetric cryptography prevents anyone but the owner of the private key from accessing the funds stored in a cryptocurrency wallet, thereby keeping those funds safe until the owner chooses to spend them (provided , that the private key does not become shared or compromised).

Crypto economy

In addition to cryptography, a relatively new concept known as cryptoeconomics also plays a role in keeping blockchain networks secure. This is related to the field of study known as game theory, which mathematically models the decision-making process of rational subjects in situations with defined rules and rewards. While traditional game theory can be broadly applied to a range of situations, cryptoeconomics specifically models and describes the behavior of nodes in distributed blockchain systems.

In short, cryptoeconomics is the study of the economics of blockchain protocols and the possible outcomes that their development can produce depending on the behavior of participants. Security through cryptoeconomics is based on the notion that blockchain systems provide nodes with more incentives to behave honestly than to behave maliciously or mistakenly. Again, the Proof of Work consensus algorithm used in Bitcoin mining offers a good example of this incentive structure.

When Satoshi Nakamoto created the Bitcoin mining platform, it was intentionally designed to be an expensive and resource-intensive process. Due to its complexity and computational requirements, PoW mining requires a significant investment of money and time, regardless of where the mining node is located and who manages it. Consequently, this structure provides a strong deterrent to malicious activity and significant incentives for honest mining. Dishonest or inefficient nodes will be quickly kicked out of the blockchain network, while honest and efficient miners can earn good block rewards.

Likewise, this balance of risks and rewards provides protection against potential attacks that could undermine consensus by placing most of the blockchain network's hashrate in the hands of a single group or organization. Such attacks, known as 51% attacks, can cause serious damage when executed successfully. Due to the competitive nature of Proof of Work mining and the scale of the Bitcoin network, the likelihood of an attacker gaining control of most nodes is extremely low.

Additionally, the cost of the computing power required to achieve 51% control of a massive blockchain network would be astronomical, which would immediately become a disincentive for such a large investment for relatively little potential reward. This fact contributes to another characteristic of blockchains known as Byzantine Fault Tolerance (BFT), which is essentially the ability of a distributed system to continue operating normally even if some nodes become compromised or act maliciously.

As long as the cost of creating most malicious nodes remains prohibitively high and there are better incentives for honest activity, the system will be able to thrive without significant disruption. However, it is worth noting that small blockchain networks are definitely susceptible to majority attacks, because the overall hash rate assigned to these systems is much lower than that of Bitcoin.

Results

Due to the combined use of game theory and cryptography, blockchains can achieve a high level of security as distributed systems. However, as with almost all systems, it is very important to apply these two areas of expertise correctly. A careful balance between decentralization and security is very important to create a reliable and efficient crypto network.

As the use of blockchains continues to evolve, their security systems will also change to meet the needs of different use cases. The private blockchains currently being developed for commercial enterprises rely much more heavily on security through access control than on the game theory (or cryptoeconomics) mechanisms required for the security of most public blockchains.