Blockchain represents the backbone of cryptocurrency as various industries such as finance, healthcare, supply chains, and more are diving into its adoption. Ever since it came into the limelight, a lot of factors have contributed to the technology going mainstream. One of the major contributing factors that led to the popularity of blockchain is its data security mechanism, which includes cryptography, decentralization, and consensus.
As internet users and consumption rate continues to increase, more cyber-attacks and malicious activities will continually be on the rise, and having reliable security is essential to all computer and network systems in this present dispensation.
However, before the advent of blockchain, industries and individuals have sought for better security measures to help with data breaches and cyber attacks – a regular occurence needing immediate solution. With blockchain technology, seeing that valuable data can be shared securely and efficiently usingscomplex math and sophisticated software algorithms, attackers face immense difficulty in executing cyber-attacks and hacks.
In this article, we will be looking at blockchain technology, its advantages and disadvantages, the mechanisms behind blockchain security, and how interoperability holds the key to a multichain/cross-chain world.
The blockchain technology
As a decentralized database system that cryptographically links blocks of digital assets, blockchain technology was first introduced in 2008 as the distributed ledger behind bitcoin transactions. Since its development, its the significant impact of blockchain technology remains evident as it gradually transforms different sectors — particularly in the financial industry and business operations.
To meet varieties of needs, preferences, and security standards, governments, businesses, and other organizations are researching and deploying blockchain technology. Its integration in business solutions eliminates the need for intermediaries and introduces better security, less expenses, immutability, traceability, and transparency leveraging a distributed network of computers..
That being said, let's look into some of the advantages and disadvantages of blockchain technology.
Advantages of blockchain technology
Security
Through the aid of cryptography, blockchain technology helps to prevent any unauthorized and fraudulent activity. Since all transactions are encrypted end-to-end, all users’ data are anonymous and information is stored on several computers instead of a single data point, making it difficult to hack.
Automation
Leveraging smart contracts, transactions are automatically triggered to help boost efficiency and increase speed as long as the pre-specified conditions are met. This helps to reduce the reliance on third parties to verify that the terms of a contract have been met.
Efficiency and speed
By streamlining the necessary business processes using blockchain, transactions can be completed faster and more efficiently. Blockchain technology exists as a distributed ledger
for transaction records hence, there is no need to reconcile multiple ledgers.
Transparency
On the blockchain, all network participants have access to the same information at the same time, making transparency easily obtainable. All transactions are immutable, time- and date-stamped; hence, all transaction history is visible.
Disadvantages of blockchain technology
Immaturity
Blockchain technology is still in its emerging phase and despite its significant growth over the past years, many people do not have much confidence in it and still have reservations adopting the technology. There's still much work that needs to be done as the adoption rate continues to grow.
Legal formalities
Most countries are still carefully formulating their response to the opportunities and threats inherent in digital assets. The lack of international laws and regulatory uncertainty makes it difficult for users to commit to cryptocurrency and blockchain.
51% Attacks
51% attack happens if one entity manages to control more than 51% of the network hashing power, consequently granting them the ability to reverse and manipulate transactions on a PoW-based network. A similar attack to this on the PoS-based network is known as a Nothing-At-Stake attack.
Whenever a miner or group of miners generates more than 51% of a PoW-based network’s hash power – the computational power required toverify transactions and blocks, it becomes possible to reverse any transaction.
Major determinants of Blockchain Security
Blockchains are built such that its security provides various desirable features that help to secure transaction data. These are some of the features of a blockchain that help it attain its security prowess:
Decentralization
Decentralization — the degree of distribution of desicion-making, influence, and control of a network of computers — is a key player in the security of blockchain technology. Given the decentralized nature of blockchains, there is no need for any central or traditional infrastructure control, hence, making it difficult for fraudulent activities. Everyone has access to the information on the blockchain and all users have access to the blockchain ledger. Both individuals and corporate businesses utilize blockchain to keep track of transaction records.
Immutability
All transactions in a blockchain ledger are immutable, cryptographically signed and time-stamped. Once a transaction has been verified, it becomes impossible for an entity to manipulate the data on the network, giving the blockchain a high degree of data integrity, and leading to increased trust and reliability in the technology.
The major issue with immutability is that it does not permit human error. Any transaction made to a wrong address becomes irreversible.
Cryptography
Cryptography makes use of both the public key and private key. The public key represents a wallet address that is available to everyone, while the private key is kept secure and should never be lost. All information sent to the public key is encrypted and can only be decrypted using the private key. Additionally, you cannot detect or know a user's private key from the public key hence, improving the secure nature of the blockchain.
Digital signatures
Digital signatures are built on cryptography and they are highly important to the blockchain. They are impossible to forge and are encrypted using a user’s private key. For instance, whenever a transaction is initiated, it becomes hashed using a hash function and encrypted with the sender’s private key; hence,creating a digital signature. This is a critical feature that helps prevent fraud in blockchain record management.
Consensus mechanism
The blockchain uses a consensus mechanism to determine how the next transaction block will get verified and added. Consensus mechanisms are rules participants ought to follow to ensure authentic transactions in a network. They also influence the amount of energy used, transaction speed and cost, and how to participate in the network. Consensus mechanisms are in place to make attacks such as the “51% attack” less feasible and often less rewarding.
The major types of consensus mechanisms are the " Proof of Work (PoW) and Proof of Stake (PoS)"
Proof of Work (PoW)
Bitcoin, one of the major cryptocurrencies, uses the Proof-of-work consensus mechanism. Miners verify the transactions and computational puzzles and any miner who solves the puzzle first will add a block of transactions onto the Bitcoin blockchain. Also, the first miner will receive an amount of digital currency native to the blockchain protocol. One of the benefits of using the proof-of-work consensus is that it is difficult to hack except an attacker on the network would acquire 51% of the total mining power. The more the number of miners competing on the network, the greater the total mining power, hence — making the blockchain more secure.
Proof of Stake (PoS)
Using the proof-of-stake consensus mechanism instead of every miner using energy to solve block problems, cryptocurrencies like Solana and Cardano use a validator, selected by algorithms to validate transactions and mint the next block to receive staking rewards. Here, the more your cryptocurrency stake, the more likely you get to validate the next block.
The main purpose of building the proof-of-stake consensus mechanism is to solve the 51% attack. A major disadvantage of using the PoS consensus is that the participant with the largest cryptocurrency stake gets more.
The future of Blockchain: Interoperability holds the key to a cross-chain world
As blockchain technology continues to grow with many emerging sectors (such as GameFi, NFTs, DeFi etc.), interoperability solutions (such as cross-chain bridges) are fast becoming the subject of the blockchain landscape, with many novel projects working to develop tenable interoperable solutions for optimal communication across disparate blockchain networks. For instance, users will be able to trade an asset on one chain for another asset on a separate chain as well as borrow assets on one chain by posting tokens or NFTs as collateral on another chain.
This is one of the major focuses of Teleport Network – infrastructure, and framework support for cross-chain communication. Teleport consists of a decentralized blockchain - Teleport Chain, a cross-chain protocol - XIBC, and developer SDKs for cross-chain app integration. Teleport Chain is scalable and interoperable with Ethereum, and built on Delegated Proof-of-Stake (DPoS) with fast-finality using the Cosmos SDK.
Also, existing apps can be seamlessly integrated with the network’s native XIBC protocol for cross-chain interoperability. Users can swap tokens and provide liquidity to another chain in a single transaction.
Teleport is a home to the Teleport bridge — a cross-chain bridge facilitating token transfers across multiple blockchains and the Teleport Wallet – the first ever multi-verse and multi-identity wallet. Join thousands of Beta testers all over the world in the Teleport Wallet Beta test campaign and with exciting rewards.
Concluding Thoughts
Blockchain technology has the potential to transform key industries as it continues to evolve. With its highly enhanced security, there will be more solutions to streamline transactions irrespective of their value.
Also, in order to gain mass adoption across several industries, interoperability will play a vital role. It is not limited to just swapping of crypto assets across blockchains; interoperability will facilitate sharing of other information such as health records, weather records, and so much more. Cross-chain solutions are still emerging and they are hinting at a future with better blockchain-based solutions.
