blockchain technology

Everything You Need to Know About Blockchain Security

Last updated on July 31, 2019

Impatience is, increasingly, a fact of life. We’re used to being able to do things in the blink of an eye that used to be an arduous process, whether that’s communicating with people on the other side of the world or ordering physical products online for same-day delivery. We’re used to finding information in seconds. To moving our money around in an instant. To accessing our accounts or data from any device.

This is all very convenient, but it’s created many of its own risks and problems. How to prevent against cybercrimes like fraud and identify theft, for example. How to be sure that people online are who they say they are, that our money’s going where we think it is, that the things we buy are derived from places they claim to be.

In short, when everything’s taking place on the unruly, semi-anonymous, digital Wild West of the web, how do you establish transparency? Create permanent records you can trust? Trace the movement of money and information from place to place?

And at the same time, how do you avoid becoming dependent on “middlemen” platforms to manage your interactions and communications for you? How do you avoid paying high fees and commissions, and simply deal with end customers or vendors on your own terms? How do you cut out long delays from the process without sacrificing on trust and security?

These are all questions that blockchain innovators are trying to solve, in all kinds of exciting ways. In this guide, we’ll take a close look at what blockchain is, how it works, how it’s currently being used – and how it’s set to shape the future of the internet.

What is Blockchain?

Blockchains are distributed, decentralized networks to which any user can add information – and, once added, this information can never be altered or destroyed.

That’s because information is only added to the blockchain storage as and when blockchain users verify that it’s legit and because this data is then encrypted using cryptography. We’ll talk about how this works in practice a little later in this article.

First, let’s break down what this actually means.

Blockchain technology sounds complicated, but in simple terms, what’s happening is that “blocks” (chunks of digital information) are continually added to the “chain” (the public database).

Usually, this information relates to financial transactions. In this case, the blocks contain data about the transaction itself, including when it happened and how money was transferred, who was involved in the transaction (the digital signature), and a unique code that helps you identify the particular block. This is called the “hash”.

Each of these blocks can store up to 1MB of data, which means that just one can include data on thousands of individual transactions.

How Does Blockchain Work?

Every time an individual transaction is made on the network, millions of computers around the world (or wherever the network extends to) rush in to verify it. In other words, if you made the transaction, a bunch of users on their computers check that the details you provided about the transaction are accurate.

But wait! It’s a little more complicated than that. Verifying is not a case of just quickly cross-referencing the data with some other ledger somewhere. The computing system that does it has to solve a highly tricky mathematical problem, using algorithms and their public keys (more on that in a moment). Only once they complete this task will the block be added to the chain.

As soon as it gets the green light, the transaction data is bundled onto a block with a bunch of other verified transactions. The entire block is assigned with a hash (the unique identifier we mentioned above). Then, it’s added to the blockchain.

Anyone can check this transaction data at any time by viewing the blockchain. Crucially, this data exists forever. It can’t be interfered with, changed or removed.

Well – it can be updated, but this will immediately be detected and recorded. The data’s owner can’t modify the original, they can only update the information and add a new block on top of the old block. This triggers an alteration across the entire chain in the network. Since you can always just look back at previous versions in old blocks, the original data is never lost, concealed or deleted.

Benefits of Blockchain Technology

You may be thinking: that’s all very interesting, but why does it matter?

Let’s take a look at the major draws of blockchain security and technology and why they hold such appeal.

Decentralized Storage and Recordkeeping

Something that attracts and worries different observers in equal measure, depending on their stance and attitude to governance, is that blockchain is intrinsically decentralized. No one “owns” it or controls it. It’s up to a vast and sprawling network to store and maintain the chain.

Many users in the network opt to store parts or all of the data on the network on their own computers. This means that there are multiple backup versions of the chain all over the place, and the system is constantly analyzing all of them to detect and remove any anomalies.

This means that, if a hacker ever did break through the robust encryption and get into a block in one version of the chain, the fraud would be weeded out at once. Basically, you can trust in the veracity of the records kept on blockchain. They can’t be meddled with. False data can’t be snuck in. Existing data can’t be removed. It’s entirely transparent.

Obviously, this lack of central authority doesn’t go down very well with corrupt / authoritarian-minded / pro-censorship figures who like to know they can always suppress information or shut down systems at will. However, it does also raise some legitimate concerns, which I’ll come back to a little later.

Cutting Costs

Blockchain “mining”, as in verifying transactions and solving mathematical problems to add a new block to the chain, takes a fair bit of toll on your computer infrastructure, but the task itself is essentially free. There is no transaction cost involved.

This means it’s not only a secure way to transfer information from one point to another, it’s also extremely cheap. That applies whether you’re recording financial transactions or registering other types of information.

Blockchain Security Wins

Blockchain is a superb way to counter the risk of data theft, fraud, and cybercrime generally. As we’ve seen, if hackers were to corrupt a blockchain, they’d need to destroy every copy of the data on every user’s private computer across the entire network, which could stretch into every corner of the globe – and all at exactly the same time.

What’s more, thanks to the “proof of work” requirement (as in the math problems you have to solve, that I talked about above), for a hacker to actually launch an attack on the blockchain they would still have to do the hard graft of solving those complex computational math tasks first. That’s a huge investment of time and energy just to compete against other users, in the hope of getting there first and listing the block. It’s highly unlikely to happen.

In short, all of this makes blockchain the most secure method of storing and sharing information on a large scale today.

Blockchain and Digital Currencies

A lot of people conflate blockchain technology with digital currencies like Bitcoin. It’s easy to see why. Bitcoin was the first thing that actually put Blockchain infrastructure into use. Pretty much all other major digital currencies are based on it. Payouts connected with blockchain technology are frequently in cryptocurrencies like Bitcoin.

Plus, “mining” Bitcoin or other digital currencies involves verifying blocks and adding them to the chain. Users perform these arduous tasks because they are being paid in cryptocurrency for their trouble.

However, it’s important to understand that blockchain is the technology that these digital currencies tend to be built on. Blockchain itself is not a digital currency.

Controversies in Blockchain

While blockchain certainly opens up plenty of opportunities, it’s not without critics or controversy. Here are two pressing problems the technology needs to tackle.

Harmful Content Here to Stay

I mentioned above that certain governments and other individuals or organizations used to assuming control oppose the idea of any decentralized system that couldn’t be shut down at their behest.

While some people who take this view may have nefarious reasons for doing so, others are genuinely concerned about protecting the public. In particular, how it impacts on victims of crime or anyone concerned about privacy and “the right to be forgotten”.

Earlier this year, for example, someone managed to embed pornographic images of children into a permanent blockchain ledger, using a Bitcoin payment processor.

Sure, the police investigation should be able to track down and prosecute the person responsible – but remember how I told you that, once verified, ledgers can never be altered? Yeah… that’s not exactly great news in this situation.

The Environmental Problem

The mining / verifying process used to add new blocks to the chain is deliberately labor-intensive and time-consuming. The trouble is, that means it takes vast amounts of computing power to complete.

That translates as enormous energy demands – and emissions. Bitcoin mining alone spits the same C02 as 2.4 million cars into the atmosphere every year!

Some blockchain enthusiasts and innovators are beginning to explore greener alternatives to power all this digital activity, but in the meantime, it continues to cause a ton of environmental damage.

How Blockchain is Used in Everyday Life

Let’s take a look at some key ways blockchain has already begun to shape the world around us, across all kinds of sectors and applications.


Considering how swift and instantaneous most of the things we do each day have become, traditional banking is well ahead of the curve.

From waiting in line to deposit a physical cheque to incurring delays and transaction fees to move your money around, much of the way we bank is woefully inefficient.

At least, until now. By embracing blockchain, banks are able to cut out long verification and processing times and to work around the clock.

Customers are seeing transaction times drop down to just a few minutes, no matter what time or day of the week they make a request. Meanwhile, on a larger scale, banks themselves can shift funds between institutions, clearinghouses or even countries at record speed.

Neither hard cash nor shares need be frozen for long periods of time. It’s in the person or the bank’s accounts, earning interest. These blockchain applications are already saving customers upwards of $16 billion per year.

The Sharing Economy

Blockchain opens up all kinds of options for peer-to-peer sharing and payments, making it easier than ever for people to interact directly without the need for intermediary platforms.

That’s particularly interesting right now because we are living in the age of the sharing economy. We buy second-hand from eBay. We carpool through apps like BlaBlaCar. We rent out our spare rooms through Airbnb. However, for now, most of us also pay a percentage to these middlemen for managing the process for us.

As blockchain makes direct dealings easier, more transparent and trackable, transaction fees in the sharing economy could become a thing of the past.

Transparent Government

As we’ve seen, one of the biggest benefits of blockchain is that it creates records that can’t be suppressed or messed with.

That makes distributed database technology enormously attractive as a way to support free, fair, entirely transparent elections, referendums, and other polls.

It’s also highly promising when it comes to solutions for weeding out corruption, as by switching to blockchain-based financial systems, government officials would find it harder and harder to disguise or conceal incoming and outgoing payments, or personal assets.

Smart Contracts

The point of a contract is to create a definitive record of what both sides agree to do. In theory, the existence of a contract should get rid of all arguments about whether the conditions have been met, what one party owes to the other, etc. Yet that’s not always what happens – often, it takes a ton more legal squabbling to get one side to honor their side of a contract.

This is where smart contracts are starting to play a crucial role. Using distributed ledgers, you can code a simple contract that automatically executes when the conditions it specifies have been met. For now, that means simple actions such as releasing a payment, but as time goes on, these types of permanent, indisputable smart contracts could become more and more sophisticated.

Registering Land Titles

Another use for blockchain that’s growing in popularity is cutting out fraud from property claims.

Distributed ledgers are publicly available, making them ideal for recordkeeping. Countries as diverse as Sweden, Honduras and Georgia are now introducing blockchain-based land registries to ensure that people can prove their rights to their land.

File Storage

No matter how much you might trust DropBox, Google Drive or iCloud with your documents, there’s always a little niggle of terror at what would happen if your data was hacked or corrupted.

By decentralizing this data through the network, it’s possible to prevent these files from being lost or destroyed. What’s more, as we’ll discuss a little later in this article, these requirements combined with the need for new ways to optimize internet speeds has given rise to a distributed web technology called the InterPlanetary File System (IPFS). This has the potential to completely overhaul the way websites work.


Have you ever chipped into a friend’s fundraising campaign through IndieGoGo, Gofundme or Kickstarter?

Over the past decade or so, crowdfunding platforms have popularized direct investment and contribution to product development. While many of these are modest, there are also plenty of big spender versions out there, including crowdsourced venture capital funds.

Now, blockchain technology is facilitating more and more of these high-risk, high-investment crowdfunds. It offers ways to decentralize investment and organization, manage investments and voting power through smart contracts, and make the whole process more transparent and accountable, so everyone can see where the money is coming from and where it’s going to.

Finance and Trading

Stock trading and general financial dealings rely on speed and efficiency. The goal is to make transactions instantaneously – ideally, cutting out intermediaries like clearing houses from trades and share settlements.

Many stock and commodities exchanges are trying out blockchain technology for this very purpose. Everyone from Nasdaq to the Japan Exchange Group has introduced blockchain-based ways to create permanent, inviolable records and facilitate instant, peer-to-peer trades.

Auditing Supply Chains

How can you be sure that none of the materials in your devices come from mines that use child labor, or use components created in countries that are supposed to be sanctioned? That your clothes weren’t made in sweatshops? That the ingredients in your food products are from where they say they are or are farmed as sustainably as they claim to be? That the engagement ring you’ve bought your fianceé is not, in fact, a blood diamond?

Monitoring and auditing supply chains has historically been an extremely tricky business, especially when it comes to verifying a company’s claims about provenance or ethics.

Tracing things back through convoluted systems is murky and confusing… but distributed ledgers are not. Using blockchain technology, you simply timestamp every transaction with data and location, including corresponding product numbers that establish its precise origin.

Several projects already use Ethereum blockchain to do this. Expect adoption of this technology to explode in the coming years.

Intellectual Property Protection

The ubiquity of the internet makes it possible for just about anyone to access just about any type of information and content, from anywhere in the world.

The problem is, this makes it very difficult for the people who actually own that content to hold onto it, or to get the money they are owed when people use it. After all, it’s easier than ever to download, copy and distribute – i.e. steal – music, movies, images and any other form of creative or intellectual work.

Blockchain technology is now opening up some interesting new approaches here, especially when it comes to smart contracts. These can be used to apply copyright protection and to automate leasing and sales of creative works online. This helps to prevent files from being copied and redistributed without permission.

It can also be used to calculate and share out-licensing payments, royalties and so on. Since blockchain lets you issue micropayments in tiny amounts of cryptocurrency, this is really easy to do even on small increments that gradually add up, without this becoming prohibitively expensive to operate.

Eliminating Money Laundering

Blockchain makes it impossible to cover up your dodgy dealings. This makes it invaluable for anti-money laundering and know-your-customer (KYC) initiatives by banks and other financial institutions.

At the moment, when you open a new account, your bank needs to jump through a bunch of hoops to make sure you’re legit. Now, a bunch of companies are taking advantage of blockchain security mechanisms to track and verify clients across different institutions, making it faster and easier to work out if they’re suspicious.

For example, an application might make a copy of your passport or proof of address, then encrypt this and store it on the blockchain. When you next need to prove who you are, the financial institution just needs to check this (block)chain of documentation instead of starting from scratch.

Why the Future of the Internet is All About Blockchain

Imagine if the whole internet – every site, app, file, etc – was completely unhackable, incorruptible and impossible to eradicate from history?

It’s a pretty bold vision, but one that many different companies and organizations are exploring.

There are many ways this could work. For example, by creating decentralized “alternative internets” based on blockchain technology, in which every file is encrypted and fragmented, with hosting split between different users.

Whatever the future holds, it’s pretty clear blockchain will take a central role in shaping the internet. Here are just a few developments on the horizon.

Thwarting DDoS Attacks

If you’re not familiar with Direct Denial of Service (DDoS) attacks, these occur when hackers try to overload your system by dramatically increasing traffic to your site, sending huge amounts of junk requests until your site buckles under the pressure and crashes. These are a major, growing problem. Kaspersky Labs reported an 84% rise in the number of DDoS attacks in the first quarter of 2019 alone.

Part of the problem is the existing DNS system, which is basically the phone book of the internet. Hackers can target the centralized part of the DNS and use this to hit one website after another, causing chaos.

An interesting idea to prevent this that’s surfaced recently is to switch over the DNS to operate on blockchain. This means that site owners could register their domain names but only they could make changes to it. This would help to steel them against hacks or disruption.

The InterPlanetary File System (IPFS)

IPFS scraps the need for the centralized client-server relationships that underpin how the internet is set up today. Instead, the web would be made up of entirely decentralized websites communicating between a vast peer-to-peer network. This would reduce pressure on content-delivery systems and increase file transfer and streaming times.

Protecting and Managing Your Digital Identity

Sick of awkward two-factor identification requirements, having to click through endless squares with pictures of road signs in them, or general friction points when proving your digital identity online?

These steps are irritating at best and insecure at worst. Until now, though, they were the bare requirement to keep you safe online.

Distributed ledgers offer vastly more effective, reliable, secure alternatives. While still in their infancy, the hope is that these will give you a way to manage your online identity, keep trusted records in one place without worrying about getting hacked, and ease online interactions. Particularly important for financial transactions or operating within the sharing economy.

Conclusion Regarding Blockchain Technology

Blockchain may have some issues to iron out, but the bottom line is: it’s here to stay. And overall, that’s an overwhelmingly positive thing.

Of course, you should never get complacent about your online safety. Even with the growth of blockchain, you still need to explore ways to avoid malware and keep an eye out for the best antivirus software.

At the same time, as the technology and systems we use integrate blockchain technology and blockchain security infrastructure more and more, we’ll all enjoy greater transparency, improved efficiency and lower costs when operating online.

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