Benefits of Blockchains — How secure is blockchain?

Accuracy of the Chain

Transactions on the blockchain network are approved by thousands of computers and devices. This removes almost all people from the verification process, resulting in less human error and an accurate record of information. Even if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain and not be accepted by the rest of the network.

Cost Reductions

Typically, consumers pay a bank to verify a transaction or a notary to sign a document. Blockchain eliminates the need for third-party verification — and, with it, their associated costs. For example, business owners incur a small fee when they accept credit card payments because banks and payment-processing companies have to process those transactions. Bitcoin, on the other hand, does not have a central authority and has limited transaction fees.

Decentralization

Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change.

By spreading that information across a network, rather than storing it in one central database, blockchain becomes significantly more difficult to tamper with.

Efficient Transactions

Transactions placed through a central authority can take up to a few days to settle. If you attempt to deposit a check on Friday evening, for example, you may not actually see funds in your account until Monday morning. Financial institutions operate during business hours, usually five days a week — but a blockchain runs 24 hours a day, seven days a week, and 365 days a year.

On some blockchains, transactions can be completed and considered secure in minutes. This is particularly useful for cross border trades, which usually take much longer because of time zone issues and the fact that all parties must confirm payment processing.

Private Transactions

Many blockchain networks operate as public databases, meaning anyone with an internet connection can view a list of the network’s transaction history. Although users can access transaction details, they cannot access identifying information about the users making those transactions. It is a common misperception that blockchain networks like Bitcoin are fully anonymous; they are actually pseudonymous because there is a viewable address that can be associated with a user if the information gets out.

Secure Transactions

Once a transaction is recorded, its authenticity must be verified by the blockchain network. After the transaction is validated, it is added to the blockchain block. Each block on the blockchain contains its unique hash and the unique hash of the block before it. Therefore, the blocks cannot be altered once the network confirms them.

Transparency

Many blockchains are entirely open source. This means that everyone can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. However, it also means there is no real authority on who controls Bitcoin’s code or how it is edited. Because of this, anyone can suggest changes or upgrades to the system. If a majority of the network users agree that the new version of the code with the upgrade is sound and worthwhile, then Bitcoin can be updated.

Private or permission blockchains may not allow for public transparency, depending on how they are designed or their purpose. These types of blockchains might be made only for an organization that wishes to track data accurately without allowing anyone outside of the permissioned users to see it.

Alternatively, there might come a point where publicly traded companies are required to provide investors with financial transparency through a regulator-approved blockchain reporting system. Using blockchains in business accounting and financial reporting would prevent companies from altering their financials to appear more profitable than they really are.

Banking the Unbanked

Perhaps the most profound facet of blockchain and cryptocurrency is the ability for anyone, regardless of ethnicity, gender, location, or cultural background, to use it. According to The World Bank, an estimated 1.4 billion adults do not have bank accounts or any means of storing their money or wealth. Moreover, nearly all of these individuals live in developing countries where the economy is in its infancy and entirely dependent on cash.

These people are often paid in physical cash. They then need to store this physical cash in hidden locations in their homes or other places, incentivizing robbers or violence. While not impossible to steal, crypto makes it more difficult for would-be thieves.

Blockchain technology produces a structure of data with inherent security qualities. It’s based on principles of cryptography, decentralization and consensus, which ensure trust in transactions. In most blockchains or distributed ledger technologies (DLT), the data is structured into blocks and each block contains a transaction or bundle of transactions.

Each new block connects to all the blocks before it in a cryptographic chain in such a way that it’s nearly impossible to tamper with. All transactions within the blocks are validated and agreed upon by a consensus mechanism, ensuring that each transaction is true and correct.

Blockchain technology enables decentralization through the participation of members across a distributed network. There is no single point of failure and a single user cannot change the record of transactions. However, blockchain technologies differ in some critical security aspects.