Blockchain, the distributed ledger technology that underpins bitcoin is the wave of financial future. Transforming industries with an advanced and optimized architecture, this ingenious technology eliminates middlemen in numerous vital services thereby reducing costs and boosting efficiency. However, blockchain technology and its applications
are still in its infancy and that is why there are several concerns surrounding the technology. Organizations across the globe have been seeking out innovative ways to tap into the disruptive power of blockchain technology for conducting secure exchange of values and assets. Several government authorities, institutions and leading companies have tested out the technology and found it to be incredibly secure and immutable. Is blockchain technology powerful enough to stop cybercrooks in their tracks? Can blockchain technology enforce security and transparency throughout the transactions? Let us take a look.
Decentralization, cryptography and consensus are the three defining characteristics of blockchain technology
that contribute to its immutability. When you own a bitcoin, you avail digital keys (a pair of public and private key) that confirm your ownership and access to the funds in a cryptographically secure cryptocurrency systems.
Whenever there is a transaction of digital assets, its details are recorded to a block which comprises of data, hash and hash of the previous block. Data present in a block varies according to the type of blockchain. For a bitcoin transaction
, the data would be the details of a transaction such as sender, receiver and amount of coins. Hash is a unique string of encrypted data that is set to identify the corresponding block and its data. This hash is processed along with the new transactions to create a brand new hash for next block in the chain. Since each block links to its previous block through its hash, even the slightest change in any part of the data would change all the hashes, making all the following blocks invalid and false.
Whenever a new transaction is initiated in a public blockchain, it would be broadcast across an open peer-to-peer (P2P) network where everyone is allowed to join and participate. A group of people who work on the bitcoin peer-to-peer network, also known as miners, utilize their computing power to record transactions and check their accuracy by solving complex cryptographic puzzle, also called as ‘proof of work’. Whenever the miners solve the puzzle and mines the block, it need to be validated by the remaining nodes according to the consensus protocol. If the block is validated, then it will be added to the network’s blockchain and the miner that solved the puzzle will be rewarded with blockchain cryptocurrency. On the other hand, private blockchains operate across permissioned networks where only the pre-chosen entities are granted with certain rights to access and create new transactions to the chain.
All the blocks in the blockchain are back-linked in chronological order and monitored across P2P nodes which makes it highly improbable to tamper records or corrupt the network. If one has to hack into the bitcoin blockchain, then he has to hack not only a single block, but all the preceding blocks and then redo the proof-of-work chain on all computers connected across the peer-to-peer network, all within a very short amount of time, which is near to impossible.
Does that mean blockchain technology has the absolute immutability? Well, No. Instead, we need to consider the scenarios where blockchain can be tampered with. If a miner or a mining pool controls more than half of the hash power on a blockchain network, then the power would be re-centralized into a single entity thereby opening doors to illicit gains and attacks. The recent slew of 51% attack on Ethereum Classic network that incurred losses of more than $1 million has raised some serious concerns about the security and power of proof-of-work algorithms.
In closing we can say that absolute immutability doesn’t exist. But this decentralized, distributed digital ledger holds huge potential to meet the evolving needs of different industries. And no doubt, the cryptocurrency market will only get more secure and reliable in near future.