The Security of Cryptocurrency and Blockchain Tech
Cryptocurrencies are decentralized digital financial assets designed to act as a medium of exchange using blockchain technology. You must have heard of popular cryptocurrencies like Bitcoin and Ethereum. However, there are many cryptocurrencies in circulation – according to CoinLore, there are more than 5,000 cryptocurrencies available.
People can use cryptocurrencies to make purchases, but most invest in them as they would in stocks and precious metals. Dealing in cryptocurrency is exciting, no doubt, but it can be risky if you don’t have complete knowledge about them.
Let us, therefore, take you through what are cryptocurrencies and blockchain, important cryptocurrencies other than Bitcoin, and the benefits and risks of blockchain technology.
What are Cryptocurrencies and Blockchain?
Before moving forward, it is crucial to understand what are cryptocurrencies and blockchain. A cryptocurrency is an encrypted and decentralized digital exchange medium. While you have a central authority to manage and maintain currencies like the US dollar and Euro, there is no such authority to manage cryptocurrencies. Cryptocurrency users maintain and manage the currency through the internet.
The first cryptocurrency was Bitcoin, which was brought in principle by Satoshi Nakamoto in a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008. Nakamoto designates the project as “… an electronic payment system based on cryptographic proof instead of trust.”
The cryptographic proof is in the form of transactions, which runs with the technology called blockchain. Our blog post – “Cryptocurrency For Dummies: What is Cryptocurrency & How Does it Work?” – provides a detailed explanation.
A blockchain is a distributed and open ledger in which transactions happen in code. Blockchain is comparable to a checkbook that users can distribute around the world through innumerable computers. Transactions occur in blocks, which then get linked together on a chain of past cryptocurrency transactions.
As Buchi Okoro, CEO, and co-founder of the African cryptocurrency exchange Quidax, explains, “Imagine a book where you write down everything you spend money on each day. Each page is similar to a block, and the entire book, a group of pages, is a blockchain.”
Blockchain maintains a unified transaction record, with every person using cryptocurrency having a copy of their own book. Every new transaction gets logged into the software, and the new information is updated in the blockchain simultaneously, which ensures all records are accurate and identical.
There are two main validation techniques to prevent fraud – proof of work or proof of stake. Every transaction gets checked with either of these techniques.
Bitcoin and Beyond
Bitcoin introduced cryptocurrencies to the world. As such, every new cryptocurrency that followed tries to match up to it.
In terms of market capitalization, popularity, and user base, Bitcoin continues to be the leader. However, since its introduction about a decade ago, many virtual currencies have flooded the market.
Let us now look at cryptocurrencies beyond Bitcoin.
Ethereum (ETH) – This is a decentralized software platform where you can build and run Smart Contracts and Decentralized Applications (DApps), which is designed to be free of any third-party interference, fraud, downtime, or control. Launched in 2015, Ether is now the second-largest digital currency by market cap after Bitcoin. Developers need Ether to develop and run applications on Ethereum, and investors need it to make purchases of other digital currencies.
Litecoin (LTC) – Launched in 2011, Litecoin is among the first few cryptocurrencies to roll out after Bitcoin. In the cryptocurrency market, Litecoin is like silver, and Bitcoin is like gold. It is an open-source global network with no central authority controlling it. It uses “scrypt” as proof of work.
Cardano (ADA) – Cardano reportedly plans to become the financial operating system of the world by creating decentralized financial products. It also is designed to provide solutions for chain interoperability, legal contract tracing, voter fraud, and other purposes. One of the founding members of Ethereum, Charles Hoskinson, created Cardano.
Polkadot (DOT) – Polkadot aims at delivering interoperability between other blockchains. Designed to connect permissioned and permissionless blockchains – including oracles – it allows systems to work together under a single roof. Unlike Ethereum, Polkadot offers developers built-in security. Gavin Wood, another member of the Ethereum team, created Polkadot.
Bitcoin Cash (BCH) – A split in Bitcoin led to the creation of BCH in 2017. The split occurred mainly due to the scalability issue. While the Bitcoin network puts a cap on the size of blocks at one megabyte (MB), BCH offers a block size of eight MB. Due to its bigger space, the transaction speed of BCH increases since larger blocks can hold more transactions within them.
Stellar (XLM) – Designed to provide enterprise solutions, Stellar is an open blockchain network connecting financial institutions facilitating larger transactions. It eliminates or reduces the cost and decreases the transaction time substantially for substantial transactions between banks and investment firms. The native currency of Stellar is Lumens (XLM), and individuals can also use the blockchain. It allows cross-border transactions between any currencies.
Chainlink – Chainlink is a decentralized oracle network that connects smart contracts like Ethereum to the data outside of it. Among its many uses, Chainlink can help monitor water supplies for pollution or illegal siphoning.
Binance Coin (BNB) – This is a utility cryptocurrency used as a payment procedure for the fees associated with trading on the Binance Exchange. People who use the token for the exchange can get a discount. Binance’s decentralized exchange operates on Binance Coin’s blockchain platform. Based on trading volumes, it is one of the most widely used exchanges in the world.
Tether (USDT) – Tether is a popular Stablecoin that tries to attach its market value to a currency or other external reference point to diminish volatility. The price of Tether is directly linked to the price of the US dollar. People find it easy to convert this digital currency to the actual physical currency.
Monero (XMR) – Launched in 2014, Monero is an open-source, secure, private, untraceable cryptocurrency that has garnered significant interest among the cryptography community. Monero is a totally donation-based and community-driven cryptocurrency. Its main focus is on decentralization and scalability, and it uses the “ring signature” technique to keep its transactions secure and private.
Dogecoin – This cryptocurrency started as a joke in 2013, but has garnered interest after people such as Elon Musk, Mark Cuban and Snoop Dogg gave it public attention.
Security Benefits and Risks
Blockchain technology has the potential to bring about major changes in the security industry. It not only helps drive digital currency exchange, but can also offer security solutions in general to address global security challenges.
From double spending and data security to cross-border transactions, currency reproductions, and frauds, blockchain technology can help address major challenges associated with digital transactions.
Here are some of the security benefits and risks associated with this technology:
It can protect sensitive records and authenticate the identity of a user – It can particularly help the banking sector. It is easy to spot data manipulation with the help of blockchain technology. The banks can think beyond asymmetric encryption and caching in public keys. Blockchain technology allows the authentication of users and devices without password protection. Due to its decentralized network, it becomes easy to generate consensus between different parties for verification, which happens through blockchain-based SSL certificates. The distributed and decentralized network ensures that no data breaches take place.
It increases structural security of IoT devices – Some block-less distributed ledgers help enhance the structural security of IoT devices. Devices here can recognize and interact with each other in a peer-to-peer manner, and there is no need for a third-party authority. With two-factor authentication also present, you get improved security with no risk of forgery.
It can secure all your internal communications – Content security is vital for both large and small enterprises. Data leaks and cyber espionage can affect every organization. Despite end-to-end encryption, sensitive information can still leak because it does not cover the metadata. But in the case of blockchain technology, the metadata remains scattered in the distributed ledger. It does not collect at one centralized point, making data leaks impossible to occur.
No need for passwords – Blockchain technology can authenticate users and devices – therefore, there is no need for a password. There is no room for human error because blockchain technology can authenticate users and devices, preventing any potential attack.
Privacy and security of digital chats – With takers increasing by the day, messenger services like Facebook Messenger, Viber, WhatsApp, Alipay, etc., can use blockchain technology to improve their privacy and security. As cases of data breaches increase, mobile security is an issue that cannot be ignored. Since no single source can control or censor blockchain-decentralized networks, it is extremely secure. Scattered metadata provides another security layer to the communication. Moreover, since you don’t need to link your email addresses or telephone numbers, it increases your privacy.
Blockchain technology can prevent identity theft, provide protection against data tampering and protect your critical infrastructure.
Blockchain technology has also paved the way for a future of smart contracts. Smart contracts (digital contracts) allow you to exchange money, shares, property, etc., transparently with no middleman.
However, every new technology has some concerns, and blockchain technology is no exception. Mass adoption and security are two areas of major concern. Cryptocurrency is the latest on the block in the fintech industry, and there are security and legal concerns here, as well.
As adoption of cryptocurrencies increase across industries, more security features are coming up to secure the transactions. People are trying to learn how cryptocurrencies can help in areas other than the financial sector.
Also, issues like compliance, regulations, and enforcement are among the matters that still need attention. For example, regulatory and compliance issues such as KYC (Know Your Customer) and AML (Anti-Money Laundering) laws need more clarity. However, as the adoption rate increases, the technology can address these issues.
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