Why are Blockchains secure?
Blockchains are not the optimal solution to every problem.
If you are building a product for people to use on the internet, you have to take into due consideration the needs of trust. I wrote an article here to introduce you to the idea of Blockchains as a best approach to build trust based online products.
Welcome To the “idea” of Trust Online!
The Internet — being online — as we know is broken in so many ways! There is an apparent lack of trust in exchange…
The question then becomes: Why are Blockchains so secure?
To reiterate my opening statement: Blockchain solutions aren’t for every product that is meant to be online. If you are building a product where the users do not have to secure their assets, verify identity, have need for privacy, a need to do away with 3rd parties in securing a contract; Then a Blockchain might just be an overkill. Thus it is then important to understand that: Blockchains are not the optimal solution to every problem.
Blockchains are best for products as outlined, but not limited, to the use cases shared above. Most especially when you intend to remove intermediaries (3rd parties) in executing a contract. This has been largely successfully with Crptocurrencies. It can be said that Cryptocurrencies have made Blockchain technology famous. Blockchain Technology is not limited to Cryptocurrencies. There are so many other use cases across all sectors and industries that man engages in.
Today it is easy for people across the world to send monies to each other without the use of Banks and without even a need for a KYC process. How then is it that trust is ensured? This can be attributed to the underlying mechanism of the Blockchain which ensures that trust via consensus is achieved.
a general agreement.
The goal of a consensus mechanism is to facilitate agreement between the parties carrying out transactions in a Blockchain. Consensus in Blockchain is based on an algorithm. This algorithm is implemented using either Proof Of Work or Proof of State mechanisms.
The purpose of a consensus algorithm, in general, is to allow for the secure updating of a state according to some specific state transition rules, where the right to perform the state transitions is distributed among some economic set. An economic set is a set of users which can be given the right to collectively perform transitions via some algorithm, and the important property that the economic set used for consensus needs to have is that it must be securely decentralized — meaning that no single actor, or colluding set of actors, can take up the majority of the set, even if the actor has a fairly large amount of capital and financial incentive. — Vitalik Buterin
It is important to note that all parties in a Blockchain have to agree on the blocks of data passed along on the Blockchain. This is in very simple terms what Consensus means on the Blockchain. Blockchains are thus secure as a result of the all involved parties (nodes, users and miners) who reach a consensus (agree) on the validity of the information passed along. Recall that data on the Blockchain is immutable. To ensure this validity of data, we have to rely on the Proof of Work or Proof of State consensus mechanisms.
PROOF OF WORK
In a Proof Of Work (PoW) consensus mechanism, all parties (computers) in the network are responsible for maintaining the security of the network. To incentive participation in the PoW consensus mechanism, miners have to correctly guess the cryptographic algorithm which is required to add a new hash to be added to the network.
In simple terms a PoW consensus Blockchain relies on the users in the network to come to agreement (consensus) on a user interaction with the network, store the information (which is immutable) and create a secure block of information containing the data. Each new user interaction (addition) follows the same process and builds on the existing information in the block.
In the PoW consensus algorithm, there are different nodes each playing individual role to validate (mine) transactions/hash.
PROOF OF STAKE
Proof Of Stake (PoS) consensus mechanism is an alternative to PoW as it is less power intensive. The nodes that will participate in a PoS consensus mechanism are selected in a lottery style form to hash a node and validate blocks. PoS is of two types:
i. Leased PoS: Leased PoS is where miners lease tokens to one node to mine the hash and when rewarded, the rewards are then shared between the miners who leased tokens to the node.
ii. Delegated PoS: In a delegated PoS, all miners delegate on node to mine a hash.
It is important to note that in a PoS, the node with a high stake has a higher chance of mining the hash. PoS are designed for public Blockchains and to handle higher transactions.
From a user point of view, it becomes obvious that when you carry out transactions on a public or private Blockchain, it takes all parties involved in the chain to verify, validate, secure and ensure trust for your transactions. This can be achieved by either a PoW or PoS consensus mechanism. When you click a button to verify identify, send cryptocurrencies or secure your document on the Blockchain, you pay a minimal amount called Gas Fees. Miners verify your transaction with the Blockchain are are rewarded for their contribution of computing resources. Everyone is thus activity involved and very much rewarded. It is safe to then conclude: Blockchains are secure for many reasons, one among them being a rewards system for miners who contribute computing resources.