In this post, we look at what makes blockchains — as applied in the cryptocurrency sector — impervious to security breaches.
What Makes a Blockchain Withstand Hacks?
Decentralized and Open-Source Protocols
A blockchain’s decentralized nature means that its network is distributed across multiple computers known as nodes. This eliminates a single point of failure. In other words, there is no way to “cut the head off the snake” — because there isn’t any head.
See more: Can the blockchain be hacked
Each transaction is called a block, and the interconnection of several transactions becomes a blockchain. Notably, a block has cryptographic elements that make it unique. A network’s hashing algorithm determines the details. For example, the Bitcoin blockchain uses the double SHA-256 hash function, which takes transaction data and hashes/compresses it into a 256-bit hash.
By making it hard to reverse the hashed value, a transaction becomes inflexible. Each block in a chain contains a specific set of data from the previous block. Therefore, even if a malicious actor reverse-engineers the hash, the resultant block would be out of sync with the rest of the blocks since it will have a different hash output, thus causing the system to reject it.
51% Attacks Are Improbable
What About Quantum Computing?
Another reason why it’s even harder to hack a blockchain is that in case the block being re-hashed is at the middle of the chain, the attacker would have to re-hash previous blocks to align their historical stamp with the new block.
For Bitcoin, this is only possible with the next generation of quantum computing, which currently doesn’t exist. And even when it does, who’s to say there won’t be a blockchain-based quantum defense mechanism to mitigate quantum attacks?
In PoS-based systems, stakes determine the strength of the network. To elaborate, this means those users who have delegated or actively locked their native blockchain assets to participate in transaction processing and finding new blocks. On such systems, an attack occurs when a hacker controls a majority of the stake.
Economics of a 51%
You can’t orchestrate a stealth 51% attack without creating too much scarcity, as your purchasing of coins will make the available ones skyrocket in value to incredibly high levels. Conversely, when the blockchain participants find out you own a majority of the coins, they will likely sell their holdings, thereby crashing the market with excess supply. So you’ll end up buying high, and selling low!
How Do Blockchains (Rarely) Get Hacked Then? Answer: Hash Rate
The Future of Blockchain Hacks
So far, nobody has single-handedly hacked a blockchain. Instead, it’s usually a group of malicious actors or the core dev team that collaborate to breach a blockchain’s security. However, as blockchain platforms get stronger through an increase of nodes or stakers, the possibility of hacking a decentralized network is increasingly moving towards zero.
In addition, newer blockchain systems use academically-proven techniques that would need highly-specialized quantum computers to hack.
To sum it all up — if you ever hear someone saying that a “blockchain was hacked!” you now have the tools to (politely) correct them and send them on their way.
Most read: Blockchain case studies | Technology | ICAEW