Blockchain Security: Reality Check

A blockchain is a decentralized, distributed record or “ledger” of transactions in which the transactions are stored in a permanent and near inalterable way using cryptographic techniques. Let’s do a reality check on Blockchain security

Unlike traditional databases, which are administered by a central entity, blockchains rely on a peer-to-peer network that no single party can control.

Authentication of transactions is achieved through cryptographic means and a mathematical “consensus protocol” which determines the rules by which the ledger is updated and allows participants with no particular trust in each other to collaborate, without having to rely on a single trusted third party. We can say that Blockchain is a “trust machine”.

Although blockchains are highly resilient compared to traditional databases due to their decentralized and distributed nature and the use of cryptographic techniques, they are not completely immune from traditional security challenges and advances in technologies, in particular, the rise of quantum computing could, in the long term, represent a threat to blockchain Security.

Security Challenges:

1. From Centralized to Decentralized:

Blockchain shifts data storage and protection from a centralized to a decentralized model. In traditional centralized models, security methods can be consolidated with the technology products they serve. Blockchain requires innovative security measures to protect the dynamic and highly distributed financial products the technology aims to support.
As with any crypto-based infrastructure, protecting keys is paramount to ensuring a blockchain system’s security. A successful blockchain system needs highly reliable methods of interfacing with the strong key protection practices afforded by Hardware Security Modules (HSMs) and these HSMs must deliver the scaling and flexibility a decentralized blockchain model needs.

2. The Asset is the Key:

Blockchain and distributed ledger technology applications combine the message and the asset in a single token. When an asset is embedded into a blockchain or distributed ledger, possessing the associated cryptographic keys is the only way to retrieve or move the asset. In other words, the key becomes an asset.

3. Instant Exploitation:

When the key and the assets are one and the same, anyone who obtains the key can monetize and exploit the asset instantly. As we’ve seen in security breaches in public blockchain settings, such as Bitfinex, Mt. Gox and others, the malicious transfer of ‘value’ can be instantaneous, irreversible and significant.
Participants in these systems lost millions of dollars as a result of compromised security systems. However, these attacks exploited vulnerabilities at the application layer—the wallets holding the keys to the assets—rather than the underlying blockchain protocol. So far, blockchain technology itself has proved tamper-resistant.

4. Protecting the Key is critical:

The ability to edit a distributed database broadens the technology’s applicability.
While the redaction capability broadens blockchain’s applicability, it also makes the protection of the keys that must come together to “unlock” and relock the chain mission-critical.

Blockchain researchers are working to patch up security vulnerabilities. We have also witnessed the hard-fork in extreme cases, where they can result in a new version of that blockchain. Considering all things, blockchain is a much better solution to many of the enterprises.  But still, it is important to keep developing and improving the blockchain ecosystem to make it as secure as possible.