Blockchain security is a method of risk management for blockchain networks. It utilizes assurance services, cybersecurity frameworks and best practices to protect against fraud and attacks.
How Blockchain Security Works
One of the primary reasons blockchain technology is useful is that it has inherent security benefits. It operates on the principles of decentralization, cryptography and consensus. This makes it useful for trusted transactions. It is one of a variety of ways, such as PSD2 SCA, of authenticating transactions online.
It gets its name from the way that it structures data into blocks. Each of these blocks is made up of a transaction or group of transactions. Individual blocks are connected to the blocks that came before them in a cryptographic chain. This makes it difficult for attackers to manipulate the chain. A consensus mechanism is used to validate all of the transactions contained in the blocks. This ensures that the transactions are correct and have not been altered.
Another factor in the built-in security of blockchain technology is that it is decentralized across a distributed network. No single user can alter the record of transactions.
How Different Blockchain Types Impact Security
Different blockchain networks operate differently in terms of who can connect to the network and access data. These networks are usually either private or public and permissionless or permissioned.
Usually, any data wrangler can anonymously join a public blockchain network. These networks utilize computers connected to the internet to achieve consensus and validate transactions. One of the most well-known public blockchain networks is Bitcoin. Bitcoin network users achieve consensus through a process known as bitcoin mining. This process works by having the miners attempt to solve a complicated cryptographic problem. Miners who can create proof of work validate transactions. These networks do not use many identity or access controls, except for public keys.
Private blockchain networks only allow verified members to have access. The members of these networks form a members-only business network. Permissioned networks achieve consensus for private blockchains through selective endorsement. This is a process where known users verify transactions. Members must have special permissions and access to be able to maintain the transaction ledger. These networks have more access and identity controls than public networks.
Benefits of Private Versus Public Blockchains
Permissioned and private networks have tighter controls and are more suitable for uses that are highly regulated. Permissionless and public networks are better for applications that benefit from a higher level of distribution and decentralization.
Vulnerabilities of Blockchain Technology
While the ledger of transactions produced by blockchain technology is nearly tamper-proof, there are ways that blockchain networks can be attacked. Cybercriminals have successfully employed various methods of hacking or committing fraud on these networks.
Phishing attacks are commonly perpetrated through emails that are designed to appear to be from a legitimate source. These emails use links to malicious sites that request user credentials. When successful, these attacks can compromise networks by allowing thieves to steal users’ login information.
A Sybil attack works by flooding a network with many false network identities. This can cause the system to crash.
Blockchains need to be able to make large, real-time data transfers to operate. In a routing attack, hackers intercept data as it is being transferred to internet service providers. When successful, they can sometimes obtain currencies or confidential data.
This method only works on public blockchain networks. A user on a blockchain network who controls more than 50% of the network’s mining power can control and manipulate the ledger. This is usually very difficult for a single user because mining requires such a large amount of computing power. However, groups of miners working together to take over a network are a larger threat.
Blockchain technology has built-in security protections, but it is not foolproof. Organizations using this technology still need to employ security measures to keep their networks safe.