Blockchain Security – A delicate balance between keeping hackers out and letting users in

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Originally created to support Bitcoin, blockchain technology is becoming more popular as people discover its uses beyond cryptocurrencies. A study found that 81 of the 100 largest companies in the world are actively pursuing blockchain-related solutions. In light of this newfound popularity, concerns arise over blockchain security.

So let’s explore blockchain security and how it works, as well as some practical examples. But before we begin, let’s all take a moment to appreciate the irony of blockchain security being called into question when it was created to provide more security in the first place.

As someone who has been involved in Web 2.0 and Web 3.0 development for years, I know that security is never taken lightly. Keeping the product secure without compromising usability is another challenge – much like keeping the house safe without locking the door.

Understanding blockchain security requires understanding the key security attributes of a blockchain network. To put it another way, what are the main points of focus when it comes to making sure a blockchain network is secure?

Transaction Integrity

To begin with, blockchain transaction content should not change during transitions. In other words, the integrity of the transaction should remain intact. It all comes down to the very definition of a blockchain, which is a chain of blocks containing transaction records.

Once the transaction is validated by all nodes in the network, it becomes immutable (ie it cannot be changed after validation). Every transaction in the chain is verifiable, immutable and time-stamped.

Intervention resistance

To be tamper-proof, a blockchain must prevent tampering, both with the objects in an active transaction, as well as with the historical data already stored in the blockchain blocks. This is secured by using methods such as the SHA-256 hashing algorithm, public key encryption and digital signature.

As an example, the Bitcoin blockchain discourages tampering because it will lead to automatic exclusion from the network. A node operator responsible for approving transactions and adding new blocks to the chain is discouraged from actively tampering with the records, as they will be easily discovered.

If a node becomes inactive and is no longer in consensus with the rest of the network, the node operator stops receiving mining rewards. To put it another way, Bitcoin node operators have no reason to mess with the ledger.

Regardless of the consensus mechanism behind them, all blockchains should rely on incentivizing node operators not to tamper with their records. This incentivization mechanism ensures that the distributed ledger remains tamper-proof regardless of how much it grows and how many blocks are added to it.

This is similar to a security guard in a bank who would have no incentive to steal if they were rewarded for protecting the money instead. The reward encourages honest behavior and discourages any thought of attempting to tamper with the records.

Consistency

Blockchain’s ledger must be consistent. In other words, it means that all blockchain nodes should update the record at the same time. A blockchain network, as we know, consists of many nodes. Since blockchain is a distributed network, every time a new block is added, all nodes should be updated simultaneously.

This is similar to having an orchestra of musicians playing different instruments in harmony. It is important that each musician is in harmony with the others to produce a beautiful sound.

Likewise, the nodes in a blockchain network must be in harmony to keep the ledger consistent. There is a lot of pressure. What happens if one of the musicians (nodes) makes a wrong note? Do they have to restart the whole song (blockchain)?

Resistance to attack

Among the types of attacks that can occur on blockchain networks are DDoS (distributed denial of service) attacks, double-spending attacks, majority-consensus attacks (51%) and Sybil attacks, where malicious attackers present false identities to cause Byzantine errors. .

Regarding the latter, Sybil attack resistance comes with significant complexity, performance, and cost trade-offs.

According to a research, among the systems with strong Sybil attack resistance are PoW (proof-of-work)-like mechanisms that rely on some form of scarce resource constraints (CPU, memory or otherwise) and PoS (proof-of-stake) -like systems that depend on the investment of resources (e.g. cryptocurrencies, stablecoins, reputation tokens).

Combinations of the two – for example, when PoW bootstrapping is used in conjunction with PoS execution – also shows resistance.

Overall, it is important that a security system protects ledger content and transactions from such malicious attacks – analogous to having a robust locking set on a door that protects against burglary attempts while allowing access to those with the key.

Data and network access

Access to blockchain data is another critical aspect of security. For the blockchain to function properly, each user or node must be able to see the records stored in the ledger at all times. The ability to access this data is essential for blockchain users as it guarantees that everyone remains informed of the latest blockchain updates.

One of the technologies that ensures the security of assets while maintaining easy accessibility is MPC (multi-party computation). The MPC technology prevents the risk of a “single point of compromise” by eliminating the need to store sensitive information in one place.

Several parties receive the private key divided into shares, encrypted and shared between them. If a private key is lost or stolen, it can be dynamically reconstructed from input from all parties.

Therefore, even if one party is compromised, the blockchain transaction cannot be performed using only that shard. It is like a bank vault with several locks that are opened with different keys by different people. Even if one key is stolen, the thief cannot open the vault without the other keys.

Pseudo-anonymity

Pseudo-anonymity in the blockchain means that only addresses are revealed – not the names of the users behind them. This helps protect users’ privacy and allows them to transact without revealing their identity, creating a trustless and secure financial ecosystem.

However, the lack of transparency in a blockchain can also be a double-edged sword. While it protects users’ privacy, it also makes it difficult to track down bad actors and hold them accountable for their actions. This lack of transparency can create an environment ripe for fraud and abuse.

According to Chainalysis, ransomware attackers extorted at least $457 million from victims in 2022. So to ensure a secure and reliable system, it’s just as important for users to hold bad actors accountable – therefore, transparency must be balanced with privacy.

In a way, it’s like finding the right balance between a castle’s security and its friendliness. Too much security can make it difficult to gain access to the castle, while too little can make it vulnerable to attack from outsiders.

Similarly, too much transparency in a blockchain can lead to breaches of privacy, while too little can lead to fraud and abuse. So if you want to keep your castle safe, make sure you find the middle ground between “Fort Knox” and “Disneyland.”

Final thoughts

It cannot be overstated how important blockchain security is to prevent unwanted intrusions. However, usability should also be considered. Developers must consider attackers as well as users when creating blockchain security solutions.

Paying equal attention to usability does not mean sacrificing security. Instead, keeping the user in mind is the key to designing effective security systems. Some already exist, and it will be great to see more in the future.

Blockchain security solutions should be like a mama bear – tough enough to keep intruders away, but gentle enough to give users a hug when they need it.

Taras Dovgal is a serial entrepreneur with over 10 years of experience in system development. With a passion for crypto since 2017, he has co-founded several crypto-related companies and is currently developing a crypto-fiat platform. As a lifelong startup and web development enthusiast, Taras’ goal is to make crypto products accessible to mainstream consumers – not just technicians.

Featured Image: Shutterstock/Space creator/Vladimir Sazonov