How secure is blockchain technology? [2024]

Cryptocurrencies, smart contracts and other applications cannot exist without this technology, Blockchain has received a great amount of attention over the last years. However, a common question arises: how secure is blockchain technology? Unless you are an academic, it is imperative for anyone investing in, developing or using blockchain technology to possess some understanding of the security implications inherent in the technology. While I take the reader through the seven characteristics of blockchain, as well as a case of blockchain implementation, the potential security problems are also discussed.

The Characteristics of a Blockchain

Among the questions that people have been asking lately, asking how secure is blockchain technology is attributable to the fact that records stored in blockchain cannot be altered. Once data is entered into blockchain can in no way be erased or manipulated that has not been approved by the consensus of the blockchain. This immutability makes it unchangeable and is another security that prevents fraud and change as deemed necessary.

Thus, such virtual currencies as Bitcoin introduced a blockchain which is still used and has never been hacked or changed since 2009. All the instant Bitcoin’s transactions are set in the block chain and this record is managed by thousands of nodes around the globe. Since the system is distributed, it is extremely difficult for any party to control the data, as it would need to control over 51% of the networks computational resources – which even if it is logistically possible, it is also economically implausible.

In the case of actual implementation, the property of immutability of the blocks was challenging in 2016 during the Ethereum DAO hack. That’s why, even though one hacker managed to take advantage of a weakness in the DAO’s smart contract, the blockchain was not compromised at all. The ‘peers’ in the Ethereum community later on had a change of mind and opted for a ‘hard fork’, to rectify the fraudulent transactions while ending up with ‘Ethereum Classic’, a blockchain that remains unchanged with the authentic data. This event demonstrated its security and robustness despite the abundance of problems this technology had encountered.

Consensus Mechanisms

This measures involve ensuring that access to the network is controlled and that all the computers in the network are properly secured. In the context of analysis, multiple questions arise: how secure is blockchain technology; how consensus mechanisms are performing to ensure the networks’ security? Consensus algorithms are those that the nodes that are present in blockchain network employ to come to an agreement about the state of blockchain. There are two broad types of PoW, with the most well-known being PoW and PoS.

In the use of Bitcoin, the Proof of Work means that the miners have to solve hard mathematical computations in order to validate transactions and include them to the blockchain. This process involves a lot of energy and hence the probability of any malicious individual garnering control of the network is unprofitable. The Bitcoin network has extensive mining operation s that are present globally and as such because of the massive computational power needed to execute a 51% attack, the Bitcoin network is frequently deemed to be very safe.

While other cryptocurrencies such as Bitcoin which employs the Proof of Work protocol, Ethereum started with the same but has shifted to the Proof of Stake with the launch of Ethereum 2. 0 upgrade in 2022. In PoS, the right to generate new blocks is given to validators depending on the number of coins they possess and are ready to ‘lock up’ or ‘stake’. This mechanism contrasts from PoW in that it cuts down on the power utilization of the same without compromising the security of the network in question. The security of PoS depends on the economic rationality, since the validators, who have delegated their coins to become validators, would lose them in case of dishonest activities.

From this we can deduce that moving to PoS has like improved scalability and was more environmental friendly without compromising on security. Ethereum remains the hub of a vast number of dApps and smart contracts and now has billions of value locked into its ecosystem. The effective implementation in Ethereum of PoS clearly shows that consensus mechanisms are strong and stable tools that allow to protect blockchain networks.

Cryptographic Security

The Entry, Collection, Storage, Retrieval, Transmission, Use, Protection and Disposal of Data. Cryptography is one of the core components in the implementation of blockchain, which is deemed to be very important in the security of data and from fraudulent access. When posing the question, ‘how secure is blockchain technology’, it is crucial to weigh in on the cryptographic methods that protect the information on the blockchain. Blockchain, like all modern and popular technologies for transaction security, use public-key cryptography. In this system, each user has a pair of cryptographic keys: a real public key that is available to other users and a fake one, which is kept concealed. While the public key or identifier helps in establishing a two-way link to a specific wallet address to which funds or other information can be sent to the specific wallet, the private key helps in authorizing transactions and hence no one else can spend or transfer the funds or information which is intended for the said wallet except the owner of the private key.

This was evident when in 2021, Poly Network lost over $600 million worth of cryptocurrencies following a hack that was ascribed to a flaw in the system’s smart contract. Even though this is a very severe attack, the hacker was not able to cash out the funds that he or she stole because the block chain retains the internal cryptographic protocol. The funds were once retrieved after a some bargaining whereby it demonstrated the strength of blockchain’s cryptographic properties even when some individuals are endowed or code is comprised.

Further, in blockchain, hashes are used in maintaining the security of information and data that is entering the network. A hash function takes input (or ‘message’) and produces a fixed number of bytes, the result is often called ‘hash value’. Every part of blocks through the blockchain possesses the hash of the former block so that blocks form an unbreakable chain. Any sort of change in the data contained in any block, will modify the hash value, which alerts of a break in the data’s integrity.

Bitcoin’s SHA-256 hash function is one of such cryptographic securities. SHA-256 generates a 256-bit hash value hence making it very difficult to predict the original hash. This hash function allows for data saved in the Bitcoin blockchain to be made safe from being altered or manipulated. To the best of the knowledge, there have been no attacks on the Bitcoin blockchain’s cryptographic layer up to now, which strengthens the belief in the system’s safety.

Potential Vulnerabilities

So the first, and somewhat paradoxical, step in the risk management process involves understanding risks. Since the blockchain technology is relatively safe, it is not entirely void of risks. As discussed when looking at how secure is blockchain technology, it is important to consider these risks to have a better vantage point of the security scene.

Only one kind of potential threat can be mentioned, and it is the so-called 51% attack when the individual or group, which owns over half of the computing capacity used for mining, or validation, is an adversary. In such a situation, the existing threat of double spending or the altering of previous payment transactions could be even executed by the attacker. While this type of attack might theoretically be possible, it is practically extremely far-fetched, especially in the case of large, solid and relatively old and famous networks like Bitcoin or Ethereum because it would require an immense computing power and enormous resources.

Yet, the micro blockchains are more vulnerable to such attacks. In August 2021, Ethereum Classic ’51% Attack: For the third time, it was attacked and $1. 9m worth of Ethereum Classic was double spent due to reorganization of the chain. This event underlined the fact that new, little, and weak networks usually do not have much hashing power and the cost of a 51% attack is much cheaper in comparison to them.

Smart contract risk may also fall under this category; this involves the vulnerability that a smart contract has in the course of its functionality. Smart contracts are computerized and self-operating contracts with the business terms of the agreement being encoded directly. Despite the fact that they are effective when used to control transactions and building decentralized systems, smart contracts are defect and can be hackable. Since blockchain-based smart contracts have their inherent code, it is highly possible that a particular smart contract contains a vulnerability, and as a result, becomes a target of hackers in which data or funds are lost.

One of the many examples of opportunities existing thanks to smart contract they opened the door for hacking a DAO in 2016. Here, a hacker hacked into the weak point of the DAO’s smart contract and stole millions of dollars worth of Ether. Despite Ethereum’s personal security, the serious loss showed the significance of smart contract assessments and tests to minimize the probability of similar attacks.

These are the potential weaknesses of blockchain but it is safe to conclude and say that it is very secure as long as necessary measures are adopted. Threat assessments and vulnerability scans, consensus and collaboration with trusted members, and the application of cryptographic methods are the main prerequisites for the security of blockchains.

Real-World Applications: Real Life Example of Blockchain Security

However, determining how secure is blockchain technology needs to go beyond the analysis of the fundamental aspects and understand how various industries utilize the security of the blockchain. From a financial sector to supply chain, the application of distributed ledger technology is on the rise because of its security.

In the financial industry, a blockchain is applied as a security measure for genuine transaction and minimizing the fraud cases. For instance, JPMorgan Chase has adopted what is called Quorum a blockchain processing platform for interbank payment settlement and other financial service contracts. As for Quorum, it incorporates aspects of blockchain to make its transactions to be transparent, secure and well processed. It has been able to achieve its objectives of decreasing the time taken to effect payments and enhancing the security of monetary operations.

In supply chain management, Blockchain is applied in the tracking of products, as well as the guarantee of the genuine nature of products. Food Trust of IBM is one of the best examples of application of this technology for building such relations. The system helps the retailers, suppliers and the consumers to follow the foods supply chain from the point of origin. Therefore, through the implementing blockchain, IBM is making the data resistant to alterations in order to minimize situations of fraud, contamination, and mislabeling within the food chain.

Not only that, in other applications, it is possible to improve the level of cybersecurity through the use of blockchain technology. For instance, Guardtime is a cyberspace company that employs blockchain in maintaining and verifying the authenticity of data in several computers. Their Keyless Signature Infrastructure is a blockchain based approach to achieving real time data integrity assurance that doesn’t depend on keys and therefore doesn’t use up resources in the event of an attack.

See Also: What Are The Key Indicators in Crypto Market Analysis?

Conclusion: Assessing the Security of Blockchain System

While evaluating ‘how secure is blockchain technology’ one can conclude that blockchain is rather highly secure: it is decentralized, based on consensus and cryptography. The actual experiences like the ability of Bitcoin to stand attacks, Ethereum to successfully transition from Proof of Work to Proof of Stake and many more, cross-industrial applications in finance and supply system also confirm that this technology is very strong.

But it is also necessary to notice weaknesses, like 51 attacks of extensive networks and dangers resulting from smart contract’s mistakes. Nevertheless, all these risks can be kept at bay if network engineers get it right, security is audited from time to time and there is serious testing done.

In total, blockchain is a highly effective technology that enables various applications to have a stable and reliable base, which will be beneficial for industries that require high levels of security, transparency, and performance. Blockchain technology is relatively new and is advancing at a rapid pace and as this develops the security will become stronger to back its status as the new foundation for the digital money affairs.