What Makes a Blockchain Secure — Security Through Cryptoeconomics

A variety of mechanisms protects Blockchains. Blockchain technology is the backbone of most Cryptocurrency systems and prevents this type of digital money from being destroyed or copied.

Blockchain technology is also being explored in other contexts where data exchange and security are precious. Some examples include the recording and tracking of medical databases, charitable donations, and supply chain management.

However, Blockchain security is far from being a simple topic. Therefore, it is crucial to understand the basic concepts and mechanisms that protect these modern systems.

There is a complete guide for beginners about Blockchain ( What is Blockchain Technology and How Does It Work).

The Concepts of Immutability and Consensus

Although many features are included in Blockchain-related security, the more important of the two is unchanging concepts and consensus.

Consensus refers to nodes within a distributed Blockchain network to agree on the actual state of the network and the accuracy of transactions. In general, the process of obtaining consensus depends on consensus algorithms.

On the other hand, Blockchain can prevent changes in transactions that have already been verified. Although these transactions are often related to the transfer of Cryptocurrencies, they can also refer to records of other non-financial forms of digital data.

Consensual, shared, and unstable Blockchain provides a data security framework in networks. At the same time, the agreed algorithms ensure that the system’s rules are being followed and all the parties involved agree on the current state of the network.

The Role of Cryptography in Blockchain Security

Blockchains rely heavily on encryption to secure data. In this context, hashing functions have fundamental importance.

Hashing is a process by which an algorithm ( hash function) receives an input of data of any size. It returns an output (hash) containing a prediction and fixed size (or length).

The output will always be the same length regardless of the size of the input. But the output will be completely different if the input changes. However, if the input does not change, the resulting hash will always remain the same — no matter how many times you run the hash function.

What are Hashes in Hash Function?

Within a Blockchain, the output values are called hashes. For data blocks, these hashes are used as unique identifiers. The hash of each block is created to the previous block’s hash, and a chain of blocks is attached to it. The block hash depends on the data contained within that block.

Therefore, the hash of each block is generated based on the data contained and the hash of the previous block. These hash identifiers play an essential role in ensuring Blockchain immutability and security.

Read this guide ( What Is Bitcoin’s Hashing Algorithm) if you don’t know about the hashing algorithm.

The hashing is also used in the consensus algorithm to verify the transaction. For example, the Proof of Work (PoW) algorithm uses a hash function called SHA-256 on the Bitcoin Blockchain. As the name suggests, SHA-256 takes data input and returns 256 bits or 64 characters long hash.

Cryptography also plays a role in ensuring the security of the wallet.

Public-Key Encryption

Paired public and private keys that allow users to send and receive payments, respectively are created public-key encryption. For transactions, private keys are used to generate digital signatures. It is making it possible to verify ownership of the coins being sent.


To maintain the security of Blockchain networks, Cryptoeconomics also plays a role.

It has to do with the field of study known as game theory. This theory makes decision-making by rational actors mathematically in pre-determined rules and rewards situations.

Although traditional game theory can apply in a wide range of cases, Cryptoeconomics typically models and illustrates the behavior of nodes on distributed Blockchain systems.

In short, Cryptoeconomics is the study of economics within the Blockchain protocol. And its possible consequences that its design can present based on the behavior of its participants.

How Blockchain Provides Security through Cryptoeconomics

Security through Cryptoeconomics is based on the notion that Blockchain provides. The work consensus algorithm used in Bitcoin mining provides an excellent example of this incentive structure.

When Satoshi Nakamoto created the framework for Bitcoin mining, it was deliberately designed to be an expensive and resource-intensive process.

Because of its computational requirements and complexity, POW mining involves a considerable investment of money and time. Therefore, such a structure provides a solid antidote to malicious activity and significant incentives for honest mining activity.

Inefficient and dishonest nodes will be quickly removed from the Blockchain network, while efficient and honest miners will likely receive substantial Blockchain rewards.

Must Read: Top Reasons Why Permissioned Blockchain will Dominate

Similarly, this balance of rewards and risks also protects against potential attacks. The attacks, called so-called 51% attacks. It cans are extremely damaging if carried out successfully.


Due to the competition of work-mining evidence and the breadth of the Bitcoin network, a malicious actor is extremely unlikely to gain control of most nodes.

Through the combined use of game theory and encryption, Blockchains can achieve a higher level of security as a distributed system. Like almost all systems, these two areas of knowledge must apply appropriately.

Building an effective and reliable Cryptocurrency network requires a careful balance between security and decentralization.

As Blockchains continue to be used, their security systems will change to meet the needs of different applications. Private Blockchains are now being developed for businesses. It heavily relies on security access control rather than game theory mechanisms that protect most public Blockchains.

Originally published at https://decentralbuzz.com on September 6, 2021.




DecentralBuzz is a latest blockchain and cryptocurrency news blog. We cover Bitcoin, Altcoins, ICO’s, Crypto updates and much more.

Love podcasts or audiobooks? Learn on the go with our new app.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Decentral Buzz

Decentral Buzz

DecentralBuzz is a latest blockchain and cryptocurrency news blog. We cover Bitcoin, Altcoins, ICO’s, Crypto updates and much more.

More from Medium

Understanding Blockchain Speed

DEX vs. CEX — What’s the difference?

DAOs as blockchain-based cooperatives

The Coming Wave: 5 Ways That Web 3.0 Allow You to be a Better Consumer