How secure is blockchain?
No financial system or data platform is free from security issues, and blockchain is no exception. Blockchains are not unhackable. It’s just very difficult to breach them.
There are only two ways to actually break the security of an established blockchain system, and both of them require a massive amount of computing power (in the case of proof-of-work blockchains) or of existing tokens (for proof-of-stake systems).
The first attack vector is known as a 51% attack. Most blockchains rely on a simple majority for their network management functions, which makes it possible to insert fake data, double-spend cryptocurrency coins, and do other bad things if you control more than half of all verification nodes. Again, there is safety in numbers, and this attack is nearly impossible to execute on networks the size of Bitcoin or Ethereum (ETH +8.95%), but brand-new altcoins may be small enough to fall victim to this method.
Bugs in the blockchain management system’s code may allow the insertion of incorrect data blocks in other ways. As usual, the older and larger networks are essentially immune because they have been operating in public for many years while dodging or blocking every conceivable type of bug-exploiting attack along the way.
New bugs may enter the system in future code updates, but updates are reviewed by thousands of operators who have a vested interest in correct and secure operations, and they cannot take effect unless a majority of node operators install and run the faulty code. Once again, newer blockchains face greater difficulties here, but they also have the benefit of learning from the mistakes of attacks on the big blockchains.
It’s true that cryptocurrency trading exchanges and digital wallets have been hacked in the past, but that’s a separate issue. Shoddy security, human error, or limited cybersecurity budgets can lead to cryptocurrency accounts being hacked, so investors should pay attention to each trading and storage platform’s reputation for iron-clad security.
What’s the difference between public and private blockchains?
Blockchain-based ledger systems can be kept on a tightly controlled private network. Thanks to several layers of data security features, they can also run on the open internet. Most of the blockchains and cryptocurrencies you hear about every day are public, but many technology companies are happy to set up private blockchain networks if that’s what you need.
Anyone can join a public blockchain network. The ability to run data nodes, process validations, store copies of the entire ledger, and play other parts in the blockchain network is not restricted, and this type of system is a truly decentralized network.
A private blockchain moves away from the ideal of decentralized management, locking down the access to nodes with the help of passwords, two-factor authentication, and other user management tools. In extreme examples, the blockchain may run entirely inside a single company or organization’s private network infrastructure, relying on firewalls and secure data centers to keep every bit of blockchain data under tight control.
This is a double-edged sword. The security of a public blockchain relies on the idea of safety in numbers, and a private network drops that idea in exchange for central authority. This makes sense if the blockchain in question was designed to fill a proprietary function that nobody outside that organization should ever have access to or control over. In most use cases, however, a decentralized approach is more secure.
