How is Blockchain Secured?
Blockchain 101 with iBetYou
Blockchain technology is the underlying structure of most cryptocurrency systems and is what prevents digital assets from being duplicated or destroyed. Not only cryptocurrency, but also blockchain utilization varies from NFTs to online betting, real estate to voting — whatever comes to mind.
Okay, how is it secured so we can rely on it with our finances and assets?
Fundamentally, the security of a public and permissionless blockchain is based on a large number of participants and the value of the underlying cryptographic currency. Blockchain security is far from being a simple subject, it is built on two concepts: cryptography and hashing, and there are pillars to help keep blockchains cryptographically secure. So, it is important to understand the basic concepts and mechanisms that provide protection to blockchains — some of the most important concepts are immutability, consensus, cryptography, distribution, and cryptoeconomics.
Some of the defining characteristics of blockchain technology are as follows:
Immutability refers to the ability of blockchains to prevent changes in transactions that have already been confirmed. Although these transactions are often related to the transfer of cryptocurrencies, they may also refer to the records of other forms of digital data such as NFTs. On the other hand, the security of the data in a blockchain is based on consensus. Consensus is achieved when all network participants agree on the validity of the transactions — based on defined and agreed-upon rules.
In combination, immutability and consensus provide the foundation for data security in blockchains. While consensus algorithms ensure that the rules of the system are being followed 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 of data is confirmed to be valid. Essentially, once a transaction has been agreed to be valid by the whole blockchain network, it is archived and cannot retroactively be changed — it is immutable.
Distribution of the processes protects the data from being kept in one place, making it harder to attack. Distributed blockchain technology evenly distributes the processing among all business peers, developing a shared infrastructure within the business system. Participants can independently validate the details without any centralized authority.
Blockchain technology streamlines the exchange of translational values with unique digital signatures that depend on public keys. In blockchain technology, private key codes are known only to the key owners to develop ownership proof. It is a critical feature that avoids any fraud in blockchain record management.
Persistence is another pillar of blockchain security. It isn’t easy to roll back the transactions once they are integrated into the blockchain ledger. Cryptographically, blockchain blocks are created and sealed inside the chain, making it extremely difficult, or in very secure blockchains, impossible, for hackers to edit or delete already developed blocks.
The role of cryptography
To achieve data security, blockchains rely significantly on cryptography. In this context, cryptographic hashing functions are of fundamental importance. Hashing is a process through which a hash function receives an input of data of any size and returns a hash that contains a predictable and fixed size.
These hashes are used as unique identifiers for data blocks inside blockchains. Each block’s hash is created in connection to the hash of the previous block, resulting in a chain of linked blocks. Because the block hash is dependent on the data contained within that block, every change to the data necessitates a change to the block hash.
As a result, the hash of each block is generated using both the data contained inside that block and the previous block’s hash — if something changes in a block hash or it gets attacked, all the later blocks will have errors due to the data change which they contain. These hash identifiers are critical to blockchain security and immutability. See the table below for a more visual explanation. 👇
Cryptography, in addition to protecting transaction records on ledgers, also plays a role in ensuring the security of wallets used to store cryptocurrency units. Asymmetric or public-key cryptography is used to generate the paired public and private keys that allow users to receive and transfer payments. Private keys are used to generate digital signatures for transactions, allowing the sender to prove ownership of the coins that are being sent.
The role of cryptoeconomics
Cryptoeconomics is the study of economics within blockchain protocols and the potential results that their design may present based on the behavior of their participants. Security through cryptoeconomics is based on the idea that blockchain systems create more incentives for nodes to act honestly rather than maliciously.
A notable example of this incentive structure is the Proof of Work (PoW) consensus mechanism used in Bitcoin mining. PoW mining involves a considerable investment of money and time — regardless of the location or the person. Therefore, such a structure provides a strong disincentive for malicious activity and significant incentives for honest mining activity.
Why is blockchain security important for the industry?
Because protection of physical and/or digital data is the key to present, and especially future human interactions.
With its key features like persistence, decentralization, and audibility, blockchain technology has demonstrated its potential for many industries. Blockchain offers highly enhanced security during transactions irrespective of its value — this is the most important tool for any business industry in the world. In DeFi — it protects your money, in real estate — it protects your ownership of the land, in the NFT space — it protects your ownership of the art you paid for, etc. Blockchain security protects your assets, as well as your promises (like bets 😎).
iBetYou stores your bets on blockchain
Through the combination of game theory and cryptography, blockchains are able to reach high levels of security as distributed systems. A careful balance between decentralization and security is vital to building a reliable and effective blockchain. Blockchains that are well-balanced with their security systems are highly secure and have a low-risk of successful attacks — that is why iBetYou stores all the bets on some of the most successful and credible blockchains; including Avalanche, Polygon, Moonriver, and Binance Smart Chain.
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