Guest Post from Michael Kelley
A fundamental shift is taking place. We are witnessing how blockchain technology can change conventional businesses by allowing consumers to reach out to providers directly without the need for an intermediary. In turn, this change reduces costs and improves business efficiency. The greatest potential of blockchain lies in bridging the gaps between central authorities and end users, allowing users to have more impact over how and for what they use their finances. It all started a while back with Bitcoin, of course, but in the last few years, blockchain has been adopted by industries investing in dApp development to gain the upper hand over the competition.
Current Security Challenges
Awareness of the potential advantages of dApp development grew in parallel with a number of security myths, leading many to question whether the new technology is capable of building trust between parties and securing transaction privacy.
Businesses and government institutions interested in exploring the potential of dApps (decentralized apps) were all asking a similar question: How effective is blockchain technology at lowering payment fees, strengthening property rights and enabling a more equitable world of global finance?
In the last 10 years or so, multiple industries – such as healthcare, finance and data storage – have experienced some level of threats or cyber attacks that cost them money and damaged their reputation. Global trends are bringing new risks of data breaches, phishing attacks and spam. These trends include the global shift toward interconnectedness in the IoT, cloud computing and the “as-a-service” business model, the surge in mobile app development, and the BYOD (“bring your own device”). Companies are rightfully concerned about how secure these new technologies will turn out to be.
The security concerns often expressed regarding blockchain technology are in part due to Bitcoin, whose initial use cases have been associated with real cases of illegitimate transactions and an air of mystery caused by unfamiliarity with the technology. Cryptocurrency, however, is only a small part of what blockchain can do. At this very moment, hundreds of blockchain developers across the globe are engaging in dApp development for activities such as securing and storing data, protecting identities and decentralizing financial transactions. Secure digital identities have been created for e-residency, passports, birth and wedding certificates, as well as other IDs.
How Blockchain Strengthens Security
Blockchain creates a new level of trust by solving the problem with a distributed database, also called a distributed ledger. Public and private enterprises, individuals included, can use such decentralized databases without the need for a central structure that stores all information in one, two or three large databases.
Blockchain is a series of blocks (a chain of blocks) that uses hashing and timestamps to record data in immutable databases. Data from a cluster of verified transactions is stored in its own block. From a practical perspective, a block can be a page in a ledger or a record of a transaction. As new information gets added to the block, the block stays connected as it was, whereas each new piece of information grows the network continuously. Data cannot be overwritten, thus making any attempts at changing the data impractical from a hacker’s perspective. The distributed nature of decentralized apps lessens network vulnerability because of the lack of what experts call “a central point of failure” or a central database that can be harmed by a single hacking attack.
The key point of blockchain security is that changes are sent to all users in real time so that if a single user is hacked, the database remains intact as all records are established across the distributed nodes. However, it’s worth keeping in mind that although dApps are superior to centralized databases, they are not 100 percent perfect. Even with advanced encryption techniques, blockchain transactions can be seen across nodes, providing metadata that may be revealed with statistical analysis. Because of the skills and the costs needed to perform such actions, however, this is an unlikely scenario and should not cause anyone to hesitate about moving forward with developing dApps.
DApp development represents an upgrade to the conventional security processes in use with most existing enterprises. Business executives need to focus on understanding the technology itself, and how it substantially impedes hacking attacks. Although imperfect, blockchain is still a vast improvement in how we execute financial transactions, and it may help many businesses operate more efficiently.