Cryptocurrencies and online security

Published On: July 8th, 2021

 

Users increasingly store more and more information on electronic media at a time when cybersecurity attacks are quite frequent. In that aspect, a decentralized and distributed network such as blockchain represents a solution: by not having a central server, potential attacks can be dealt with. All this thanks to the creation of large networks that decentralize transaction processes between users and open the door to new possibilities that seemed impossible before. Blockchain technology is the underlying structure of most cryptocurrency systems, and is responsible for preventing the duplication or destruction of digital money. But even so, how secure are we using blockchain technology? Cryptocurrencies and online security. 

 

Security: the fundamental pillar of the blockchain Cryptocurrencies and online security

 

Blockchain technology offers a high level of security, therefore this is its strong point thanks to its distributed nature, the intensive use of encryption and the irreversibility of transactions. Virtually none of the major projects have been directly compromised in terms of security: attacking or hacking secondary services is not the same as the basis of these services. They have hacked exchanges, DeFi services, decentralized applications. This has represented huge losses but the blockchain itself, which is the technological basis of these services, continued to function smoothly. Bitcoin, Ethereum and other major projects have had continuous operation for more than 11 years: the security of the blockchain is so robust that it is not breached. The main reasons for this are: decentralization, cryptography, transparency and traceability, governance and consensus.

 

Decentralization 

The main element that adds security to blockchain technology is decentralization: not having a central server makes it possible to deal with potential attacks. The network consists of thousands of nodes located in different parts of the world, and the functionality of the system depends on these nodes. This offers a very high resistance to potential threats, failures and censorship, plus a level of security that other options are not able to provide. This type of attack on centralized networks, as can happen with traditional means of payment, can cause a huge downtime in the service network, users not being able to access their accounts and a great loss in economic terms. On the contrary, if a person wanted to attack a network such as Bitcoin or Ethereum, not only would they not achieve the desired effect, but it would also be very costly. They would probably manage to take some nodes of the network out of service, but as long as the rest continue to function there would be no inconvenience at the operations level and the network would not go down and would continue to work normally. This is one of the big differences between centralized and decentralized networks. Cryptocurrencies and online security 

 

Cryptography 

Blockchains rely heavily on cryptography to ensure the security of their data. A very important cryptographic function is hashing: a process by which an algorithm called a hash function receives input data and returns a specific result (output) containing a value of a preset length. Regardless of the size of the input, the output will always be the same length. If the input changes, the resulting output will be completely different. However, if the input does not change, the resulting hash will always be the same – no matter how many times you run the hash function.

In blockchains, these output values or hashes are used as unique identifiers for the data blocks. The hash of each block (block hash) is generated from the hash of the previous block, and is responsible for linking the blocks together, generating a chain. In addition, the block hash is dependent on the data contained in the block in question, which means that any change applied to the latter would require modification of the former. These hash identifiers play a fundamental role in guaranteeing the immutability of the blockchain.

 

Transparency

The concepts of transparency and traceability refer not only to the possibility of seeing the entire history of the blockchain, but also that all the data of the network, its operation, its software and its development is publicly available. This contrasts with many other centralized payment platforms in which we cannot know how the technology and processes behind and facilitating those services work. Transparency allows us to know how the system works, to know its strengths, to detect its weaknesses, to audit and control that it is working correctly and, above all, to improve it. 

 

Consensus and immutability  

Consensus refers to the ability of the nodes that make up a distributed blockchain network to agree on the state of the network and the validity of transactions. Likewise, the process of achieving consensus depends on so-called consensus algorithms. Immutability, on the other hand, refers to the ability of blockchains to prevent the alteration of transactions and/or digital data that have already been confirmed. Consensus and immutability, combined, provide the basis for data security in blockchain networks. While consensus algorithms ensure that the rules of the system are being respected and that all parties involved agree on the current state of the network, immutability guarantees the integrity of data and transaction records after each new block is confirmed as valid.

 

Governance 

Governance or rules of participation in the development of blockchain technology also plays an important role in security. Most of today’s blockchain projects are open source projects, meaning that anyone in the world can contribute to their development. However, without the necessary control this could be counterproductive for the project. Each platform establishes its own rules of participation, operation and governance. Thus, there may be public platforms that are accessible without restrictions, such as Bitcoin or Ethereum. There may also be private platforms that condition participation within the platform. Whichever way it is approached, the chosen participation and governance scheme dictates how the project is developed and who can contribute to such development. Thus, projects such as Bitcoin or Ethereum submit development decisions to the community, while a small development team has the ability to develop and implement ideas directly, especially on security issues.

 

Conclusions 

 All the points we have previously exposed help to deepen and analyze the intrinsic characteristics and virtues of blockchain technology. With this in mind and if we would like to put together a future outlook, we can expect these characteristics to continue to strengthen: a situation that will significantly impact the security of the technology and the services associated with it, through the implementation of improvement in network security systems. Blockchains are capable of achieving very high levels of security as distributed systems. A careful balance between decentralization and security is vital to build a reliable and effective cryptocurrency network. After 11 years of development, the blockchain has reached important milestones related to security and the evidence supports that we are moving in the right direction. 

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