The most important security aspects of blockchain are:
- Cannot be changed
- Aren’t controlled by any single entity
- Everyone can view the transactions.
Blockchain security and privacy comprise of smart contracts, forks, cryptography (algorithms, and cryptographic key management)
It facilitates the transaction on the internet without the need for a middleman or an escrow service. When 2 parties are involving themselves in a contract they will need to draw a smart contract. The contract turns into a block in the blockchain network which is visible to all the nodes in the network. However, the identity and private information remain anonymous.
|Steve is selling stock of a company and Bill wants to buy it.|
|They sign a smart contract and date it exactly from today. All the information is in a block. The information is ownership to Bill and the transfer of money to Steve.|
|On the date of the contract, the smart contract ensures, the automatic transfer of the ownership to Bill and payment to Steve.|
Smart contracts are programmatically executed transactions or pets. In other words,
Smart-Contract = code+ legal contract .
- It executes autonomously. Blockchain Contracts are decentral, which means no external party is required in the process.
- It contains embedded info about ownership of assets and parties involved.
- Also has multiparty signatures to provide secure access to the contract.
- It is error resistant, designed not to make human mistakes.
- It is fast due to the absence of a middle-man.
The Mortgage industry is a good example to illustrate the Smart Contracts. Smart contracts can make the whole process of Real Estate Frictionless and less prone to errors.
They can automate the mortgage contracts by connecting the parties process payments and release liens when the loan is paid.
PROPY – Real Estate
Frequently Asked Question: Why are there so many versions of Bitcoin?
Let’s acquaint ourselves with the Scalability Debate miners use their computing power to look for new blocks to add to the blockchains for validating a transaction.
The block in the chain has a size limit of one megabyte, and only so many transactions can go through it. Once this was manageable, but as bitcoin became more popular, the block size became a bigger issue. With the number of monthly transactions increasing and with the current 1 MB, block size bitcoin can only handle about 4.4 PS. In contrast to some big credit cards companies, offering 1400 TPS. 4.4 is not acceptable if bitcoin goes mainstream.
Solution: Replace by Fee.
To Elaborate let’s consider an example: Suppose Alice sends 5 Bitcoins to Bob, but the transactions are not going through because of the backlog she can’t delete the transactions because bitcoins once spent cant come back. However, she could do another transaction of 5 bitcoins with bob. This time the transaction fees will be high enough to pay the miners. As the miners put her transactions in the block, they will also overwrite the previous transactions and make it null and void.
Challenge with Replace by Fees
While the replace by fees system is affordable for miners, it’s pretty inconvenient for users without a lot of bitcoins. If you pay the lowest possible transactions fee, then you will have to wait a median time of 13 minutes for your transactions to go through, this is where the debate comes in.
And voila Forks.
It’s a condition where the state of the blockchain diverges into different chains, where the new chain operates by diff rules than the original.
Types of fork
Soft fork: The backwards-compatible changes made to a blockchain, miners can still interact with the blockchain without updating. Think of it as a basic security update on your computer.
Hard Forks: the blockchain permanently diverges into different chains that operate by different consensus rules.
It allows the community to change certain aspects of the rules while maintaining security. In a perfect world, soft fork will let the network stay completely intact while continually adding new features but in the case of major differences like bitcoin and bitcoin cash that may not be always possible.
Symmetric key: in this type of cryptography only one type of secret key is used to encrypt and decrypt the info. It uses either a number or a word or a string of random letters. This is the oldest type of encryption technique sender and receiver both should know secret key in order to encrypt and decrypt the message.
Asymmetric key: It is known as public-key crypto. It uses 2 keys to encrypt the message, one is called the public key, and the other is the private key. A message that is encrypted using a public key can be decrypted using a private key and vice versa. It is more secured than symmetric key cryptography. One of the major parts of asymmetric-key cryptography is digital signatures. Digital signatures provide integrity to the process; they are easily verifiable and cannot be corrupted. The digital signatures ensure that the blockchain is valid and the data is verified and correct.
Hash Functions- This type of encryption doesn’t make use of keys. It uses a cypher to generate a hash value of a fixed length from the plaintext. It is nearly impossible for the contents of plain text to be recovered from the ciphertext. Blockchains generally use the SHA-256 hashing algorithm as their hash function.
Benefits of Hash Cryptography
- Avalanche effect – A minute change in the data leads to a totally different result.
- Deterministic – Any input will always have the same output if passed through the hash function.
- Quickness – The generation of output will be very fast.
- Reverse engineering is not possible, i.e. Data cannot be generated using the Hash.
Although Blockchain Security has many mechanisms, cryptography and encryption remain the core of it. As the Blockchain keeps on gaining traction there will be more use cases and the security systems will keep on evolving.
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