Blockchains are secured in various ways—cryptographic techniques and mathematical models of behavior and decision making. The idea of a blockchain is to keep assets away from duplication or, even more so destruction. Blockchain is under most cryptocurrency exchanges and is essentially how we can rely on our digital assets being safe.
Blockchain’s uses extend beyond cryptocurrency. To track charity donations, for example, or supply management and medical databases.
As simple as blockchain may sound, it is a rather tricky concept. It is essential to understand the basic functionality of the blockchain system to understand how it protects these innovative systems.
Immutability and Consensus
First of all, we have immutability and consensus, which are two of the most important concepts of a blockchain system.
Consensus is in reference to the nodes agreeing on the state of the blockchain network and the validity of transactions. This process of consensus depends on the consensus algorithms.
Immutability refers to blockchains’ ability to restrict changes to already validated transactions. Transaction data usually relates to cryptocurrency and digital assets; however, there are also records of transactions of non-monetary forms of digital data.
These two concepts combined are what secure a blockchain. The consensus algorithm is essentially a system making sure that the blockchain rules are going according to the rules. It also checks that all parties using the blockchain agree on the system functionality and state of the network. When a new block of data is verified, immutability is what maintains the integrity of the data and transaction records.
Cryptography is what provides the blockchain network with data security. This is where hashing becomes important. The hashing process is where an algorithm receives data of any size and returns an output (aka a hash) affixed in size or length. The output will always be hand in hand with the input, meaning that the output will always stay the same length. However, if the input changes, the output will also change. It doesn’t matter how many times the hash function is run, the output hash will always be the same if the input does not change.
Within blockchain technology, these hashes are identifiers for data blocks. Each block’s hash is in connection to the previous block’s hash, resulting in a chain of connected blocks. Any changes that are done affect the block hash. Therefore, each block hash depends on the data within the block. As a result, the hash of each block is computed using both the data inside that block and the preceding block’s hash. These hash identifiers are critical to blockchain security and immutability.
Cryptography, in addition to securing transaction records on ledgers, plays a role in maintaining the security of wallets used to hold cryptocurrencies. A private key creates a digital signature for a transaction, proving ownership of the coins. The nature of asymmetric cryptography prevents anybody other than the private key holder from accessing the cryptocurrency wallet. In this way, those assets are secure on the blockchain until the owner chooses to spend them.
Cryptoeconomics is a new concept that also offers security to blockchain networks. It is a study related to game theory. Game theory is a mathematical tool for decision-making. While it may relate to a wide range of situations, crypto-economics studies characterize nodes’ activity on distributed blockchain networks.
The concepts we spoke about provide us with a secure blockchain network. Game theory and cryptography combined to provide high security. However, the two need to function properly to give good results. A balance between decentralization and security is the secret to a stable and efficient crypto network.
For more news updates, visit our homepage now and see our latest news article. Want to learn more about trading? Visit our education page now and learn for FREE!