How the blockchain secures data?
The technology works literally like their name; the data/transaction is stored in a chain of “blocks”. Each set of information or the block is linked to the block before it or after it. As a result, the data is difficult to tamper with because the hacker needs to alter information not only in the particular block but also in the other blocks linked to that particular block to avoid suspicion. Now, this aspect alone might not offer a high level of security, but some other inherent characteristics of this distributed ledger technology offers additional means of security.
The data/transactions on the blockchain are secured through cryptography. The participants of the network are allotted their own private keys that get assigned to the transactions they do. These private keys also work as their own personal digital signature also. In case a data or transaction is altered, then the signature also becomes invalid and the participants of the network will know that the data has been tampered with.
So, unfortunately for the hackers, it becomes difficult to tamper with the ledgers as they are decentralized and distributed across large networks which are not only continuously updated but also kept in sync. The other characteristics that makes blockchain secure is that the data/transactions are not contained at a central location, as a result, blockchain don’t have a single point of failure. The hacker needs to have access to gigantic amount of computing power in order to change data at every instance (or at least at 51% of the network location) of the given blockchain to alter information.
So, why are the crypto exchanges getting robbed of millions of cryptocurrencies?
Yes, we have all read about the rampant cyber theft in the cryptocurrency world. According to news, the cryptocurrency theft this year has been $4 billion so far. Now, the answer to your question. Yes, cryptocurrencies are based on blockchain however, their theft from the exchanges or the personal wallets have no direct relation with the security of the blockchain.
Development of cryptocurrencies such as bitcoin, ripple and ethereum are taken as a parallel economy being developed by the cyber world. However, when it comes to securing these cryptocurrencies, the responsibility is completely owned by the exchanges or the wallet owners of these cryptocurrencies. In case one is not properly educated on the subject, it is very easy to lose these cryptocurrencies. Also as these cryptocurrencies don’t have a legislative record, it is impossible to mitigate the loss incurred.
1. Crypto wallets
One of the major steps to keep the cryptocurrency safe is to know the correct wallet where you can store them. There are two major categories of crypto wallets available:
• Hot wallets: Digital cryptocurrency wallets connected to the internet
• Cold wallets: Digital cryptocurrency wallets not connected to the internet
A common example of the hot wallets is the wallets that people have at crypto exchanges. These wallets are all the time connected to the internet to offers ceaseless trading to the users across the world. As, these wallets hold making them susceptible to frauds and thefts.
Exchange wallets are not just the only type of hot wallets, desktop wallets like Exodus are also exposed to hackers as malware can be sent to the computer connected with the internet.
2. Phishing Attacks and Scams
Here the hackers or cyber thieves disguise malicious websites as a known, legitimate exchange or crypto wallet website in order to steal the passwords and private key of the user. There are many ways and means to carry out the phising attacks and hackers are creating new ways and means every day to hijack data.
In order to avoid falling prey to these scams, it is suggested to double check the URLs of the exchange websites before entering sensitive information. One can also type the website address manually to ensure that they end up opening the correct website. All the exchanges these days have started the 2-factor authentication which adds another layer of security to safeguard data.
3. Consensus Frauds
One of the unique kind of blockchain frauds that started happening this year is the 51% consensus attacks. These attacks have been made possible due to the existence of smaller blockchain networks. The participants in such networks like Verge are limited and therefore, the validation responsibility goes to a single participant. In case they hold enough mining power to compete with the rest of the network, they can reach the 51% consensus, and the data can be altered to the way they choose. Hackers are using this way to change the history of the transactions and re-routing millions of dollars’ worth cryptos to their own accounts.
As an emerging technology, blockchain became popular because it helped people, particularly those who didn’t trust each another to share important data in a secure and unchangeable way. How? Blockchain as a distributed ledger technology stores data using advanced math and software rules which makes it difficult for the attackers to hack the ledger. The reason why hackers have been able to rob exchanges with millions of dollars is only because of external technology being prone to hacks and human error.