Everyone is concerned about cybersecurity today, and they should be as cyber-attacks are on the rise. However, it seems that whenever a new IT advance comes along, people ask, “How secure is it?”

Blockchain is a relatively new technology originally created to support Bitcoin. However, the technology’s popularity has soared, and people are discovering that blockchain has uses that go beyond cryptocurrency. This newfound popularity, naturally, begs the question of blockchain’s safety and integrity.

That’s why today we’re investigating blockchain security, what it is and how it works. We’ll also touch upon some current examples of blockchain security in action.

What is Blockchain Security?

We begin by reminding ourselves about blockchain itself and what it is. Blockchain is a distributed ledger technology (DLT) designed to engender trust and confidence in an environment. Blockchain is a decentralized ledger system that’s duplicated and distributed across a whole network of computer systems. It allows information access to all designated nodes or members who can record, share, and view encrypted transactional data on their blockchain.

Blockchain technology gathers and stores information in groups, also referred to as “blocks,” and each block can hold a certain amount of data. When the block reaches capacity, it is chained to the previous full block, creating a chain of data, hence the clever name “blockchain.”

Blockchain security is a complete risk management system for blockchain networks, incorporating assurance services, cybersecurity frameworks, and best practices to mitigate the risks of fraud and cyber-attacks.

Blockchain technology's data structures have inherent security qualities because they are based on consensus, cryptography, and decentralization principles. Each new block of information connects to all the previous blocks in a way that it's nearly impossible to tamper with. In addition, all transactions in a block get validated and agreed on by a consensus mechanism (authorized users), guaranteeing that each transaction is true and accurate. Thus, there is no point of failure, and a user can’t change transaction records.

However, blockchain security goes even beyond its inherent security characteristics. Here’s how.

What Are the Types of Blockchain?

Before we explain how blockchain provides security, we need to point out several types of blockchains, each with unique challenges.

  • Private Blockchains

Private blockchain networks require an invitation. Users must be validated by either the network’s central administrator or starter or by a rule set put in place by the network’s administrator. Businesses that use private blockchains typically set up a permissioned network. Permissioned networks limit who can participate in the network and the types of transactions they can initiate. In any case, participants need either an invitation or permission to join.

Private blockchains typically use a “Proof-of-Authority” (PoA) consensus approach and are often used in internal, business secure environments to handle tasks such as access, authentication, and record keeping. The transaction data is typically kept private.

  • Public Blockchains

Public blockchains focus on participation and transparency. Transaction consensus is “decentralized,” meaning anyone can participate in validating network transactions, and the software code is open-source and available to the public (e.g., Bitcoin and Ethereum).

The main characteristic of public blockchain networks is decentralization through cryptoeconomics, made to ensure cooperation throughout a distributed network. In public blockchains, it means the network has no political center of control, and the software system design has no architectural central point-of-failure.

How much of a blockchain is decentralized relies on the design of the consensus algorithm, network governance, ownership of cryptographic “private keys,” and providing economic incentives. Consider, for instance, the concept of “data mining,” where users earn cryptocurrency by validating transactions. This reward gives people the motivation to join the network and participate in validating the transactions.

Governance considerations cover who develops the software code, who can work in the consensus mechanism, and who can participate in the communal governance activities that maintain the network. Public blockchain consensus mechanisms are primarily “Proof-of-Work” (PoW) or “Proof-of-Stake” (PoS).

However, as far as access goes, anyone can join and validate transactions, and that's the significant difference between public and private blockchains.

  • Consortium Blockchains

Typically, when discussing blockchains, public and private blockchains are the only ones mentioned. However, there is a third option: consortium blockchains. Consortium blockchains consist of known participants preapproved by a central authority to participate in the consensus within a blockchain network. This “semi-permissioned” approach allows a network to be distributed or partly decentralized, yet still allowing for a degree of control over it. Incidentally, transaction data in consortium blockchains can be kept private.

Consortium blockchains can reach consensus via “Proof-of-Work” (PoW), “Proof of Authority (PoA), or “Proof-of-Stake” (PoS). In addition, there are other available methods, such as delegated proof-of-stake.

Consortium blockchains are best suited for use between known parties, banking, supply chain management , or Internet of Things(IoT) applications.

Blockchain Security Challenges

Blockchain isn’t perfect. There are ways that cyber criminals can manipulate blockchain’s vulnerabilities and cause severe damage. Here are four ways that hackers can attack blockchain technology.

  • Routing attacks. Blockchains depend on immense data transfers performed in real-time. Resourceful hackers can intercept the data on its way to ISPs (Internet Service Providers). Unfortunately, blockchain users don’t notice anything amiss.
  • 51% attacks. Large-scale public blockchains use a massive amount of computing power to perform mining. However, a group of unethical miners can seize control over a ledger if they can bring together enough resources to acquire more than 50% of a blockchain network’s mining power. Private blockchains aren’t susceptible to 51% attacks, however.
  • Sybil attacks. Named for the book that deals with multiple personality disorder, Sybil attacks flood the target network with an overwhelming amount of false identities, crashing the system.
  • Phishing attacks. This classic hacker tactic works with blockchain as well. Phishing is a scam wherein cyber-criminals send false but convincing-looking emails to wallet owners, asking for their credentials.