The blockchain system was specially developed taking into account security issues. For this, special cryptographic methods and mathematical models of behaviour are used. All this serves to prevent the deliberate and accidental adding distortions into the information stored in such a network. And in the particular case - to prevent copying, destruction and theft of digital currencies.
And although cryptocurrencies are the most popular example of using blockchain technology, in other areas of human activity, information protection can also be important. For example, in the field of healthcare, supply chain development, charity, management and many others.
Basic concepts
No matter what kind of information will be stored on the blockchain, two basic concepts will be used to protect it - consensus and immutability.
Consensus means that the individual nodes that form the distributed network operate on the same conditions, jointly deciding on the reliability of the information contained in the blocks. The same transactions when it comes to cryptocurrency. This is provided by software consensus algorithms and does not require human intervention.
Invariability means that they will be entered into the blockchain after validation, the information is not subject to change. This ensures a “one-time” use of cryptocurrencies and the inability to correct data retroactively. It is provided by the information encoding features - any change immediately changes the hash of the block, so it ceases to be associated with subsequent elements of the chain.
In this way, both the observance of the network rules by individual nodes and the safety and authenticity of the stored data is ensured. But in reality, it’s still more complicated and interesting.
Cryptography
The basis for protecting information stored on the blockchain network is cryptographic encoding methods. In particular, hashing. It is implemented in the process of the hash function. The function receives data (volume is not important), processes it, and at the output, it produces a “solution” hash of a given “length”.
Any change in incoming information, even within a single bit, will lead to a change in the hash. But if the data does not change, then the hash will be the same, regardless of which machine the function will run on. This hash is used to generate a hash of the subsequent block, which provides a clear and consistent connection between the information.
If someone tries to make a change to one of the blocks, then this will immediately “tear” him out of the general chain, since all generated subsequent blocks will be built on the “old” hash. It should be borne in mind that this must be done on more than half of all machines connected to the network. Which, although real, is difficult.
As an example, we can name the SHA-256 hash function, which is used in the Bitcoin system. It is called so because the output always gets a file with a length of 256 bits or 64 characters. This function is used both to achieve consensus in confirming transactions, and to generate new blocks for coins.
But the use of cryptography is not limited to this. These methods are also used to ensure the security of wallets on which cryptocurrency is stored. So, for example, for each individual wallet using asymmetric encryption, two keys are created - public and private. The public key is used to interact in the system and to generate a personal digital signature for transactions. There is an opportunity to automatically link an individual wallet and payments created on the basis of public keys. In addition, it is asymmetric encryption that ensures that only the owner of a private key can withdraw funds from a digital wallet. Everyone else can only replenish it by using public keys.
Cryptoeconomics
This is a fairly new science, which is quite different from the classical economycs because it is based not on existing economic models and forecasts, but on the algorithms of the mathematical “game theory”. This is possible because computers, unlike people, are able to act rationally, regardless of circumstances, since all possible behaviours are clearly spelt out in algorithms and programs. So the behaviour of the individual nodes of a decentralized network fits within the framework of game theory.
And one of the postulates guaranteeing the effective operation of the blockchain, in this case, is the banal “economic feasibility”. If we talk about cryptocurrencies, the point is that counterfeiting transactions require an impact incomparable in cost and resources. Conversely, honest work is more appropriate because it is naturally rewarded.
Let’s consider the Bitcoin network as an illustrative example. It was purposefully created so that the process of obtaining new blocks and rewards for them was complex and resource-intensive. And you can, of course, spend time and resources on faking data, but the profit from this in most cases will not even cover the costs. And inefficient nodes supplying false information are excluded from the general network.
In addition, this “cost-effectiveness” guarantees compliance with the concept of consensus. Since for effective data distortion, it is necessary to collect more than 51 percent of the total computing power of the network. This is difficult if we are talking about such large cryptocurrencies as Bitcoin - too many resources should be concentrated in one place. Even at the level of player states on cryptocurrency exchanges, this is not yet possible.
And the situation in which false data is generated by a smaller part of the computing power of the network is offset by a mechanism called Byzantine Fault Tolerance (BFT). It allows you to effectively operate the entire system, even being directly in the process of malicious exposure.
To summarize, you can be sure then even having overcome the cryptographic protection of information, “hacking” Bitcoin is too expensive and time-consuming - yet the creation of full-fledged working nodes requires a large resource base. At the same time, honest work within the given framework is always rewarded. And this is much more profitable in the framework of "rational behaviour" used in game theory.
As for other cryptocurrencies, especially new ones, they have their own additional protection mechanisms that compensate for the relatively small computing power. But not always.
Conclusion
Through the use of cryptography and game theory, it turns out to achieve a high level of security even in public anonymous decentralized networks. Alternatively, for example, access control may be used. However, this means less decentralization, and with it, a much smaller scale. However, it is quite sufficient for internal networks operating on the principle of blockchain.