Why is blockchain tech so secure?
Decentralization through peer-to-peer networks mitigates all type of hacks, censorship, and server down time because peers rely on each other to keep the network online. There is no central servers, and instead peers (nodes) share information with each other. When applied to blockchain technology, decentralization ensures that a single actor has the authority to change or censor transactions and that the network can not be shut down without tracking down every single node running the network and turning it off, while the blockchain itself ensures that there is no double-spends. Proof of Work and Proof of Stake mining acts as anti-sybil measure that makes blockchains can’t be manipulated by an actor that creates multiple signatures or accounts.
Furthermore, blockchain’s immutable nature can also be used to store and verify all types of data that is exterior to the monetary system on which it runs. This is a strong weapon against manipulation and forgery of records.
So, how can this system be used on a larger scale by financial institutions? In the acclaimed tv show, MR. Robot, the main character and his team of hackers, F.Society, are able to hack the show’s fictional company, E Corp, and to destroy its records. In the show, clients of the E Crop bank are left without account balances and no way to restore them. The information is, in this case, lost forever.
This fictional episode portraits a real risk. Central servers used by financial institutions can be (and have been) hacked and records can come out in the open, or even destroyed. If the system runs on a blockchain, though, an hacker would have to target all the nodes running these blockchain. Of course, since we’re talking about a bank, their records can not be out in the open, so a public blockchain is out of question. However, private blockchains can be used to mitigate this risk and increase security over traditional systems.
Private blockchains are just like a normal blockchain, but with restricted access, meaning that not anyone can join the network or have access to its information. Private blockchains can be used in many sectors. Take health care, for example, a private chain can provide easy access to patient records shared by one or more medical facilities. This facilitates communications and makes the system safer.
In the future, it may also be possible for certain industries to use public blockchains without revealing sensitive information to the public, through the use of zero-knowledge proof, the underlying technology used by Zcash, the anonymous cryptocurrency. Zero knowledge proofs allow immutable information to be stored on the blockchain without being made public and make sure no double-spending takes place.