Finance

Blockchain Is the Dawn of a New Day in Technology. But Is It Safe Enough?

bitcoin security visualization

For the past couple of years, the blockchain technology has been on everyone’s lips. It has made a long path from being just a notion that associates with Bitcoin to the groundbreaking innovation which has drawn the interest of major global financial groups and governments of the developed countries. Blockchain is no longer considered a shady tech invention which is subjected to persecution. Nowadays, blockchain is a harbinger of change in the area of technology-related operations, the basis of a system that will transform the way we manage finances, run business, or even file documents. It has passed through the period of tests and doubts, and now the blockchain is moving out of the lab into a global arena. According to Global FinTech Survey, 55% of users are planning to use blockchain as part of a production system or process by 2018. Moreover, these figures will increase by as much as 22% in just two years. The interest towards this technology is phenomenal; therefore, knowing all advantages and disadvantages is of an absolute importance. But first, it is necessary to understand what blockchain is and how exactly it works.

Blockchain is a decentralized ledger of all transactions in a network. In essence, it is a tool for storing and transmitting data and digital assets which can be used for various purposes, from monetary transactions to documentation flow. The blockchain technology allows the users of the network to confirm transactions without the need for a defined third party intermediary, meaning that the data is distributed directly between the participants.

The blockchain works in the following way:

A user requests a transaction. For instance, a user initiates a payment in bitcoins with the help of a special tool software known as a “wallet”.

The requested transaction is transmitted to a peer-to-peer network which consists of “nodes” or, in the case of Bitcoin transaction, miners. This network allows peers to share recourses amongst each other without the use of a centralized administrative system.

Next step is validation. The P2P network confirms the transaction and the user’s status by virtue of special algorithms. A confirmed transaction can involve monetary assets, documents, different records and other sorts of information.

After the verification process is completed, the transactions are amalgamated with other transactions to form a brand new block of information for the ledger. Every ten minutes, the nodes or the miners, which constitute the global network, create a couple of hundreds of blocks. The miners are being awarded for their work in the form of expended computation capacities, with bitcoins emitted by the system.

A newly created blockchain is added to the general blockchain and after that, it can’t be removed or changed in any way.

The transaction is complete and the user gets a notification on his or her device.

Problems of blockchain technology

The whole process seems to be rather simple but there are many issues that should be taken into consideration before introducing this technology on a global scale with security being among the most important ones. Securing a blockchain is far more complicated than securing a conventional network, as it requires dealing with a bigger list of specific concerns, such as consensus hijack, sidechains, distributed denial of service (DDoS) attacks, wallet management, scalability, smart contract management, interoperability, governance controls, and a lack of anti-fraud/anti-money laundering capabilities.

The first and one of the biggest concerns is consensus hijack. It can occur in the decentralized network that has no restrictions, which is basically the essence of a blockchain. In such networks, the consensus is created by the majority, meaning that the perpetrator has to gain control over a great number of accounts in order to modify the validation process. Bitcoin clients refer to this type of hack as a “51% attack”. During such an attack, the offender creates new blocks quicker than other peers in the network which results in a false validation of the transaction.

Sidechains are less protected than the major blockchains because transactions which occur in such chains are of a more specific nature. Oftentimes, the user has no interest in securing sidechains by providing relevant mining power, so these chains become extremely vulnerable to attacks.

Distributed Denial of Service attacks also presents a big threat to the security of a blockchain due to its decentralized nature. In case if the offenders manage to gain control over a big number of clients, they will be able to cause a major disturbance in the system operations by issuing a large number of malicious transactions.

Wallet management involves the protection of the key by wallet software. If the security of the key is compromised, the offenders can gain access to the wallet without leaving any imprints in the system.

Smart contracts are very vulnerable to any flaws that may occur with the code. The attackers can disguise the malicious programs as a smart contract to steal the assets from the network.

Interoperability concerns arise due to the fact that the conversion process of different formats and protocols is still far from being perfect.

The problem with the governmental institutions resides in the difficulty of coding such structures into the distributed database and providing security of the classified information.

Lastly, there is a significant lack of anti-money laundering tools which could not only identify the owner of a fraudulent account but also block such illegal actions in advance.

Future of Blockchain Security

Despite the fact that the blockchain security is imperfect, the developers are working relentlessly to improve the situation. The specialists from the Microsoft Corporation have developed a two-phase strategy of ensuring the security of a blockchain system which can be visualized as the Parthenon, an ancient Greek temple, the roof of which is supported by pillars. The first phase involves building the foundation that will be able to withstand the critical attacks, and the second phase provides the security of pillars with the roof being the ultimate security of an enterprise. The progress is obvious, and it won’t be long until blockchain becomes one of the most trusted and safest systems in the tech world.

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