For a while the media has been fraught with news of scams, hacks and widespread uncertainty concerning blockchain and its related entities. It is unhelpful that most of society is still largely un- or mis-informed of this technology, and casual generalization of its abuse and misuse, especially in the cryptocurrency aspect, results in a careless renunciation of blockchain entirely.
If you are reading this, chances are you probably heard about blockchain or Bitcoin from an acquaintance and are curious to learn more while you are sitting on a fence about it. Where security is concerned, the question “can Blockchain be hacked?” remains a concern amongst newcomers.
Fundamentally, Blockchain is decentralized. When you take away intermediaries and distribute the authority or functions of a central body across a large network, there is greater transparency throughout the system, enabling greater efficiency, greater trust and lower costs. In addition to decentralization, blockchain is also secured with cryptographic algorithms.
How this works is that a transaction takes place and is processed on chain to be verified. Once verified, it will be grouped with other newly verified transactions and cryptographically sealed together, also known as ‘hashing’, in a data block of fixed block size. This occurs at regular intervals to continuously update the blockchain, and all data blocks are stored in a chronological and linear manner. Each new data block generated will contain hashed information detailing, for example, a timestamp, the trail of blocks preceding it and transaction data. This growing list of data blocks or records binded by cryptography is why the technology gets its name: Block-chain. So for any given asset transacted on the blockchain, you can tell who possessed it at any point in time and events that happened throughout its lifetime.
Blockchain is resistant to data modification by design. In other words, once a data block is finalized on chain, it cannot be altered and the transactions contained within are immutable. For one, because of the cryptography involved, it is virtually impossible to reverse engineer the hash of a data block. Hashing algorithms are specifically designed for one-way operations to give a result that cannot be (easily) calculated backwards. There is an infinite number of inputs that can result in the same hash output.
Take a simple mathematical operation like addition, which takes 2 inputs to produce an output. Given 2 inputs, the output is easy to calculate:
4 + 6 = 10
But given the output, there are multiple combinations of 2 possible inputs:
1 + 9, 2 + 8 …
A hash works in a more exceedingly complicated way and magnitude than the above illustration, so you can understand why reverse engineering a hash is a tall order given the long time it takes at the current level of computing power we have.
Even if someone does reverse engineer a single hash, and alters the content of one data block somehow, the stamped details will not agree with the hash information of the rest of the block trail it is linked to, and the system would automatically reject the false data block. In order to successfully change and implement a single block, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would undoubtedly take an enormous and improbable amount of computing power.
Furthermore, the process of ‘consensus’ helps keep inaccurate or potentially fraudulent transactions out of the database. Being decentralized means that multiple computers or nodes on the network hold a copy of the blockchain ledger. For amendment of information on the blockchain, there must be 51% agreement or consensus from the entire network of nodes acknowledging and verifying the change.
One may argue for a hypothetical scenario whereby one bad actor gains control of more than 50% of the computer power of the network, or more commonly known in the industry as a ‘51% attack’. Fortunately, established blockchain networks like that of Bitcoin and Ethereum have innumerable participants so acquiring 51% of a network is extremely difficult. For blockchains that rely on ‘mining’, the perpetrator has to buy over enough hardware to give 51% computational power of the network. For blockchains that rely on ‘staking’, the perpetrator has to purchase all the liquidity out of the exchanges to acquire 51% of a network’s staked tokens, which ironically means sabotaging their own interests. In a hypothetical hacking event in any of the two examples mentioned, hijacking the network becomes tremendously unappealing and hence very unlikely.
Many people confuse hacking of cryptocurrency exchanges or online wallets with the attacking of blockchains, with headline news centred on exchange sites where people trade and hold cryptocurrencies. (*Note that blockchain does not equate to cryptocurrency, which functions like a resource on a blockchain network involving the use of tokens. For example, Ether is the cryptocurrency native to the Ethereum blockchain.) Most of these heists could be blamed on poor basic security practices, either failing at the end-user level or the centralized model of the institution itself. For instance a hacker can gain access to cryptocurrencies held on an exchange in a user wallet by stealing the authentication information needed to facilitate a transaction, before transfering the stolen funds into their own wallet. However these are all potential criticism of the cryptocurrency system and not the security of the blockchain technology itself.
Having explained blockchain technology at a more fundamental level and addressing the hacks that the public hear of in the media, are we to conclude that blockchain is absolutely hack-proof?
On the contrary.
A 51% attack has happened before and cryptocurrencies remain susceptible to it; people are also discovering security loopholes and weaknesses, such as smart contract / program bugs. Nonetheless, blockchain remains relatively safe and secure, and is preferred over other existing methods of transacting today when people actually understand the value of transparency, immutability and several upsides that blockchain can offer to a consumer when properly utilised versus the traditional methods we are more familiar with. Blockchain technology actually comprises of a group of different technologies combined and customizable for different needs, and will continue to be developed and refined for its numerous possible applications in the real-world. Hopefully this read has enlightened you to some extent to see a little beyond the shroud of scares by the media, authorities and human avarice.