July 10, 2019
By Mary Ann Callahan
Blockchain technology is touted by many to be the future of data storage. Moreover, it attracts attention, because it is related to cryptocurrency. Everyone who ever tried to buy bitcoin is aware of blockchain. However, it is reasonable to pay attention to the opinion that blockchain as a concept is hugely overhyped. Just the fact that something claims to be a blockchain doesn’t mean that the data it stores cannot be altered.
To fully understand the capabilities and limitations of a “blockchain” it is essential to consider what exactly a blockchain is.
What is Blockchain?
Blockchain is essentially a distributed database. The crucial difference between a traditional database, like those used in millions of offices around the world, and a blockchain is there is no single point of failure with the latter.
Traditional databases rely on a centralized server. The information they contain is updated via this server and if the server goes down for whatever reason, so does the database.
It is also important to note that only those who have permission to communicate with this server can amend the database. This means that those referencing information from the ledger must trust this centralized authority.
This works great for lots of application because there is already trust in the entity maintaining the database and since a single party has the authority to alter the information, it can be done very efficiently.
A blockchain essentially creates a database in which none of the individual parties need to trust each other. It achieves this by incentivizing network participants to check and update the data themselves and to do it in accordance with the network’s rules. By doing so, the central trusted party needed for a traditional database is completely removed.
Blockchain is simply a generic term for a distributed database in which participants in the network can amend a shared ledger. They do so by adding a new block of data to the chain of blocks of data stored previously.
In Bitcoin, the most famous and most secure blockchain, each block of transactions contains something, known as a hash of the previous block, as well as its own hash. A hash is a string of data that has had an algorithm applied to it to turn it into a long sequence of seemingly random characters.
There are many different types of hashes and each could have many thousands of words written about them. However, the take-home message with regards blockchain is that a hash is very difficult to guess and very easy to verify once known.
In a blockchain system like Bitcoin, network participants (computer systems) known as miners compete to guess the hash of the previous block of information added to the ever-expanding blockchain. The miner that guesses the hash correctly gets to add their transactions to the database.
In a properly decentralized public blockchain like Bitcoin, the next hash could be guessed by anyone of tens of thousands of miners. This means the process of adding new information to the chain cannot be dominated by a single malicious entity.
However, not all blockchains are secured by anywhere near the sample amount of computing power as Bitcoin. Take some smaller blockchain-based digital currencies, for example. If suddenly the entire Bitcoin network (essentially a supercomputer capable of guessing over 50,000,000, 000,000,000,000 guesses at a hash every second) was pointed at another blockchain-based digital currency, the combined clout of the Bitcoin network would be able to update the ledger of the smaller crypto. This ridiculous example would, of course, never happen since there is a lot of value in mining the Bitcoin networks (miners get rewarded for playing by the rules and verifying transactions). It is this incentive structure that makes the financial application of true, decentralized, public blockchains the only one that has really gained any traction so far.
However, of course, it is not only Bitcoin’s credit that we hear the term blockchain so often. All kinds of companies are developing their own systems that loosely resemble that backing the world’s most popular digital asset. Some are exploring the use of the tech in supply chain management to increase efficiency, others want to use it to verify things, such as identities or the origin of certain outcomes.
These blockchains are entirely permitted, but not open source, however. Since they are all completely different, it is incredibly difficult to judge how much “secure” each one is. Being private, their details are hard to come by.
These private company blockchains; what exactly are they storing? Well, it’s often details about the transit of some product from origin to shop. That way, the merchant can check that the “Alaskan salmon” they’re selling ever swam in the icy northern waters.
Compare this to Bitcoin. What kind of information does the Bitcoin network store? Cold, hard financial data and tens of billions of dollars’ worth of it too. The network is so robust because it has to be and it has to be because it’s so robust. The more robust it is, the more people trust it, and the more people trust it, the higher the price goes. Consequently, the higher the price goes, the more people want to mine it, only serving to make it more secure and so on.
Ultimately, asking if a blockchain is secure is a little similar to asking if a house is secure. The obvious answer to such a non-specific question is “which house?”. Each blockchain, whether it be backing digital assets such as Bitcoin, Ethereum, Dash, or Litecoin, or a private blockchain created by a company to try to increase its efficiency, is entirely different. Even those that are built to be almost carbon copies of one another are different by virtue of how much computing power is working on the network.
As mentioned, the Bitcoin network is the oldest and most secure blockchain. It has never been compromised even though it is being attacked every day. Hacks of exchanges and careless Bitcoin users, whose wallets were compromised should not be misconstrued as the network’s security weaknesses. Third party services may have holes in their security as well, but so far there have been none in Bitcoin itself. Meanwhile, other blockchains have been compromised because they have such puny amounts of computing power securing the network relative to the amount of value stored in whatever that token or coin might be.