Cryptocurrencies have taken the world by storm since 2008 when Bitcoin emerged on the market. Since then, thousands of cryptocurrencies have been created, with different features, until they reached 19.000. As more are expected to appear, the blockchain needs to adapt and provide a safe space for transactions and other exchanges.
Until now, there are a few essential things that make the blockchain secure, but in the future, we anticipate that crypto regulations are to develop, crypto ETF will be more popular, and more institutions will accept crypto payments (like PayPal and Square). Regardless, let’s see what makes the cryptocurrency blockchain so secure for its users.
Table of Contents
Stability
Also known as immutability, this characteristic indicates something that can’t be changed or altered, ensuring a permanent network. This works because blockchain technology doesn’t rely on institutional authorities. Instead, it guarantees its features through a collection of nodes that have a copy of the digital ledger.
Every node has to check the validity of transactions to be added to the ledger, which promotes transparency and makes the node corruption-proof because, without the code’s agreements, no one can add any transaction blocks to the ledger. Plus, once the blocks are added to the ledger, they cannot be changed.
This feature helps fight corruption, given that banks and other financial institutions are less secure due to the lack of education on cybersecurity risks. It is why public blockchains are the perfect example of security and transparency when no one is able to hack into them or steal information. There are also private or federated blockchains for businesses that want to keep their data secure from public view.
Decentralization
In the blockchain, decentralization refers to transferring control from a centralized system to a distributed one. Cryptocurrencies exist in this framework by the group of nodes that maintain the network, where everyone can access, store, and control assets. This feature is important because:
- It doesn’t depend on human calculations and, therefore, there are fewer mistakes, where accidental failures are rare;
- Users don’t need a third-party institution to maintain their belongings;
- The blockchain can survive most malicious attacks because it is way more difficult and expensive to hack such systems than a centralized organization;
- You can’t be scammed on the blockchain because the system runs on programmed algorithms;
- Every change on the blockchain is public, so anyone can see what’s happening inside the system;
There are many blockchain applications using decentralization to provide better services, like dApps, DAOs, and even cryptocurrencies, like Ethereum, which works on smart contracts, decentralized finances, and exchanges. If you’re curious about Ethereum price today, keep in mind that it frequently fluctuates due to certain factors, so it’s best to know some basic elements on how to read a chart to grasp its evolution fully.
Cryptography
This complex mathematical algorithm acts as a firewall and adds another layer of security to the blockchain. It focuses on securing transactions and the users’ information and ensuring that unauthorized participants can’t read messages, data value, or transactions through encryption keys. There are two methods of encryption:
- Symmetric-key It focuses on using identical keys for encryptions and decryption of data. It can also apply to encrypting a hard drive or securing the connection to an HTTPS website.
- Asymmetric-key Also known as public key cryptography, it uses different keys for the same purposes by generating the key pair that’s shared openly. It’s generally used by two unknown parties to exchange information securely.
Another related feature to cryptography is hashing― a process of converting data into a unique string of text. This method cannot be reversed, meaning that the data can’t be deciphered. It is used for passwords and mining purposes in cryptocurrencies.
Distributed ledgers
Considered among the most critical features, having distributed ledgers means providing all information about transactions (in private blockchains, it might be a little different). The ledger on the network is maintained by all other users on the system, ensuring a better outcome through distributed computational power.
This digital database has some essential features:
- No one can alter the ledger and, therefore, there are no malicious changes;
- It provides fair participation due to ownership of verification of blocks;
- Nodes maintain the ledger and participate in validation to make the blockchain work;
Distributed ledger technology (DLT) follows a different data structure, but it can be used to power blockchains. Some of the advantages of this system are protection, integrity, speed, and the reduction of the environmental footprint.
Consensus algorithms
Consensus algorithms are decision-making processes made by people that construct and support certain decisions. Their purpose is to promote equality and fairness, but there are other objectives of this model, like:
- Collaborations that result in the best agreements in the group’s interests;
- Co-operation that allows individuals to work as a team;
- Mandatory participation by everyone in the network;
- Fair voting activity that doesn’t put anyone at fault;
The blockchain needs these algorithms to ensure the system is fully decentralized. There are many types of consensus algorithms, each one with distinct usages, but we’ll remind only two of them:
- Proof-of-Work. This is the first algorithm used in the blockchain network to confirm transactions and produce blocks to the network chain. It works by determining the possibility of mining and getting coins by the amount of work done by a particular individual. Even if most cryptocurrencies use it, it has limitations (needing lots of computational power, making it more difficult to mine). Therefore, some cryptocurrencies, like Ethereum, have changed or are in the process of changing their algorithms to Proof-of-Stake.
- Proof-of-Stake. In this system, people can mine and validate new blocks based on their coin possession. Still, not every miner can participate in the staking, even though the process is random. You first must be qualified to be a node on the network to be able to stake the minimum amount required. But it is more energy efficient than PoW, doesn’t need much power consumption, and can reduce most attack threats.
Finally, the blockchain is becoming more secure as the years go by, and there’s no doubt that the future of cryptocurrencies will be full of improvements and new features.