Suppose you are transferring money from your bank account to family or friends. You log into your Internet banking and select the amount to transfer to the other person using their account number. Once the transaction is complete, your bank will update the transaction records. These transaction types are very susceptible to manipulation. The banking transactions vulnerability is essentially why blockchain technology was created.
Unlocking Blockchain's Potential for Security
Blockchain is a distributed database, maintaining an ever-growing list of ordered records called blocks. Blocks are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Blockchain is a decentralized, distributed, and public digital ledger, used to record transactions on many computers around the world. A record cannot be reversed without changing all subsequent blocks and network consensus.
Most people assume that blockchain and bitcoin are the same, but this is not true. Blockchain is a technology capable of supporting various applications related to multiple industries, such as finance, supply chain, etc. Bitcoin is a currency based on blockchain technology that should provide a higher level of security.
We have two main blockchain types, namely "With authentication" and "Without authentication" of access. Other blockchain types fall under one (or both) of these main types.
- With authentication, it can restrict the nodes’ access to the network and control the node network rights that are part of the blockchain. All users in an authenticated blockchain network share their identities. Since this blockchain type has limited access, the network hosts fewer nodes than blockchain networks without authentication. A key advantage of access restriction is greater efficiency, as fewer nodes mean less processing time for each transaction.
- Without authentication, it provides pseudo-anonymous access to the blockchain network to all users. Each user can create a node and use the network without limitations. Due to the nature of the blockchain, networks without authentication are more secure than those with authentication. They have more nodes to verify each transaction, reducing the likelihood of tampering with the mined block. However, these networks are often characterized by longer transaction processing times.
Blockchains can be also dived into the following categories
- Private: a blockchain with authentication led by a central authority, usually an organization. This central authority has the power to grant or deny access to nodes connected to the network. It can also grant nodes different rights to perform functions. The public may not have access to a private blockchain, so it is only partially decentralized. Due to the limited number of nodes and the relatively large input control of the central authority, a private blockchain can be susceptible to fraud and other malicious operations.
- Public: public blockchain networks are inherently without authentication, open to all and therefore “truly” decentralized. Public blockchain networks also give all nodes equal access rights and allow them to freely create and verify blocks. Public blockchains are widely used for cryptocurrency mining and exchange. These networks typically have longer verification times than private blockchains, but this makes them more secure. Examples of public blockchain networks are Bitcoin, Ethereum, etc.
- Hybrid: best defined as a blockchain that attempts to take advantage of both private and public blockchain solutions. In an ideal world, a hybrid blockchain would mean controlled access and freedom at the same time. The hybrid blockchain architecture is not open to everyone, but it still offers public blockchain features such as integrity, transparency, and security.
- Consortium: another attempt to address the public and private blockchain limitations is the consortium blockchain, which is managed collectively by many organizations instead of just one. It is a blockchain with authentication. Consortium blockchains are more decentralized than private blockchain networks. Creating a blockchain consortium requires collaboration between many organizations, usually from the same industry. Although this solution increases the network’s security due to the increased number of nodes, it introduces logistical obstacles and the risk of monopolistic dealings.
Another blockchain classification is based on the consensus type used
There are two most common block confirmation types: Proof of Work (PoW) e.g. Bitcoin and Proof-of-Stake (PoS) e.g. Ethereum and others.
New networks in the crypto world are trying to come up with a new consensus type that is supposed to be faster and more secure than the previous ones. Therefore, it is possible to find various Proof of… solutions.
- Cost reduction through decentralization
- Provides a banking alternative and a way to secure the personal information of citizens from countries with unstable or underdeveloped governments
- Energy efficiency of PoS consensus
- Non-uniform regulation
- Energy consumption of PoW consensus
- Small number of transactions per second (compared to credit cards)
Blockchain is more than just cryptocurrency. It is a cutting-edge technology that has the potential to revolutionize business and management. Institutions today are experimenting with blockchain in many aspects of daily operations. As the digital frontier moves further and further, blockchains could offer us the transparency and data security we need for a better future.
Blockchain is the foundation for all crypto. Without it, the crypto world would not exist. With each new block written, the world of cryptocurrencies moves forward. If blockchain becomes more integrated into existing systems, it could solve corruption in politics, money laundering, and various other problems that are unprovable thanks to centralized information storage companies.