ABSTRACT
DLT (Distributed Ledger Technology) is the underlying technology of a number of today's applications, which is now commonly referred to as “Blockchain Technology” in the media these days. Blockchain offers a disruptive approach to store information, make safe transactions, perform functions and enable trust in an open environment. It is also seen as a technological breakthrough for security and cryptography. Use cases of blockchain range from globally implemented cryptocurrency systems such as Bitcoin to smart contracts, smart networks via the Internet of Things, etc. [1].
Although blockchain technology has found increasing interest in recent years, data transparency, privacy and trust remain at the center of the discussion when the blockchain is used in several applications. The element of privacy is one of the frequently asked questions when it comes to transparency of blockchain technology. How it is transparent when the participants of the blockchain are pseudonyms? This paper describes the fundamental security features that are supported as basic requirements and building blocks for blockchain-based systems and provides an overview of how blockchains has the capability to build trust among unknown participants while maintaining a sufficient level of privacy and transparency at the same time.
INTRODUCTION
Since “Satoshi Nakamoto” published a white paper on Bitcoin and blockchain technology in 2008, it has been used as a tool to tackle trust issues and create transparency in transactions between independent participants [2]. Blockchain technology was developed as a method to verify the Bitcoin ownership of virtual currency. The original idea behind the creation of a blockchain is the digitization of trust, agreements and value, as well as a significant reduction in the time and cost of processing transactions to almost zero.
Blockchain is a shared and immutable digital ledger system that is implemented in a distributed manner and functions as a mechanism for the secure transfer of assets without intermediaries. In simple words, blockchain is a data structure that contains records of transactions and digital events while ensuring data transparency, security and decentralization. Once data is recorded on the digital ledger which is distributed over a network, it is almost impossible to corrupt it. It is a technology that facilitates the digital exchange of any valuable thing like land or cars can be stored and exchanged as a transaction on a blockchain.
The innate properties of the blockchain are unlike any other technology, so it is often revered as a revolutionary technology. When the characteristics of decentralization, immutability, transparency and auditability are combined, the term “trustlessness” emerges. This trust, which is normally expected of suppliers to sell their services, is no longer necessary, thanks to blockchain.
HOW DOES THE BLOCKCHAIN TECHNOLOGY WORKS?
To better understand blockchain, it is worth taking a look at traditional ledgers. These traditional ledgers are centralized and black-boxed, in which data is not completely visible to users and the central authority has complete control of the system and mediates each transaction. Blockchain allows the same record-keeping functionality but without the central authority. The question is how to guarantee that a blockchain transaction is valid if there is no central authority to confirm it. Blockchain solves this problem by decentralizing the ledger. The ledger is stored in several copies on a network of computers. Each time a transaction takes place on the blockchain, it is validated by all the participants.
Each new transaction to be recorded is combined with other new transactions to form a block which is added as the most recent link in a long chain of transactions. This chain is the blockchain ledger which is maintained by all participants called nodes. This work of adding blocks is called "mining". There are two features which makes this system theoretically tamper-proof: a unique cryptographic fingerprint called Hash and a Consensus Protocol. To add a block into the blockchain, a hash which is unique to the block needs to be created by solving the extremely difficult mathematical puzzle. The miner who finds the eligible signature of block first, broadcast this block along with signature. All the network participants must validate and agree on the content of the distributed ledger. Therefore, a consensus model is required in each blockchain which ensures the validity of block and transactions in it. Consensus mechanism in the blockchain are used to avoid a central authority and track all transactions.
There are various consensus models, one of them is proof-of-work which allows all miners in the blockchain to generate the next block in the chain. This is mainly done by solving extremely difficult cryptographic puzzles. The only node that solves the puzzle can first propose the next block, which is then checked by the other nodes to check the validity and the correct solution of the puzzle. The miner receives a reward for solving this puzzle and using a lot of computing/ electrical energy. Another consensus model called proof-of-stake is based on the idea that the more amount of stake a user has in the system, the more the system is likely to succeed and the less likely it is to undermine it. With this consensus protocol, it is not necessary to perform resource-intensive calculations as can be found in the proof of work [3].
It is important to keep in mind that block chains are categorized in two main categories called public and private blockchains, with several variants. The most important difference is that no authority in public blockchain can deny permission to participate. They can also be described as the embodiment of social and political values such as transparency and the distribution of power. Public blockchains often use a consensus method that requires more than a trivial effort to prevent bad users from easily undermining the system. The reason these blockchains can work is that there are rewards for participating in the process. In private blockchains, a limited group of actors is allowed to access the ledger, verify it and add transactions. Private Blockchain is less transparent and decentralized than public ones. This allows conventional players like banks and governments to keep control of their blockchains. Another important characteristic of public blockchains which differentiate them with private blockchains is that they are created on “principle of anonymity”, while latter use participant’s identity to verify membership and access rights [4].
BLOCKCHAIN: TRANSPARENCY AND PRIVACY
The degree of transparency offered by blockchain technology is one of its hallmarks. Its unique feature of transparency provides an unprecedented level of accountability. As every block of information is traceable, it obstructs any attempt to modify information singly, thereby having the potential to improve various processes employed in different industries. However, the ready availability of information to everyone, being one of the distinguishing characteristic of this technology, raises a question of privacy. For that, there are provisions in blockchain technology that safeguards the privacy of individuals and control over data. In that way, blockchain technology ensures transparency and privacy at the same time [5].
Although the technology is extremely private, the blockchain network offers unprecedented transparency in the case of its auditable and valid ledger of transactions. Once the network validates the transaction, it can no longer be manipulated, amended or removed and thus guarantee the immutability of the digital ledger. Since each block is linked to all blocks before and after it, the process of modifying the data in a block would require a lot of computational power, which makes it tremendously difficult to alter the record, because not only block with this record needs to be altered but all the blocks associated with it to avoid detection and it has to be done before any other node can add new blocks in the chain. So if hacker does not have more powerful computers than the rest of the nodes combined then adding blocks will conflict with the existing ones and changes will automatically be rejected by other nodes. Therefore, records are permanent and impossible to modify in the blockchain.
Cryptography in the blockchain ensures secure data record. Each transaction in a blockchain is secured with a digital signature which confirms its authenticity. Once the network seals and validates each block cryptographically, it can no longer be tampered. If someone tries to change it, digital signature will no longer be valid and network will know that someone has attempted to alter it. The use of encryption and digital signatures makes the stored data on the blockchain tamper-proof.
As the identity of the participant remains confidential, everyone can freely deal with the other person via the secure network. One of the main benefits of blockchain technology is complete anonymity and secure transactions. For many reasons, it is essential that participants maintain confidentiality and anonymity. For each transaction in centralized networks, the address is given out meaning that hackers can find the user's details. The blockchain protects addresses in a specific wallet by constantly changing addresses, which makes it difficult for hackers to track payments or transactions [6].
Blockchain is a decentralized technology in which there is no central control point. Instead, to validate the transactions to be added, blockchain uses consensus protocol across the network of nodes. In blockchain, all data is digitally recorded and shares a common history which is available to all participants in the blockchain network. All the participants must approve unanimously that it is the only version of truth in order to add a new block and must do it while ensuring its integrity [7]. It guarantees that the data mining nodes cannot play the system by always being able to solve the puzzles and thus control the blockchain and the transactions added to it. While manipulation of a traditional ledger requires an attack on the intermediary, a blockchain requires a simultaneous attack on each copy of the ledger. There can be no "fake ledger" because all users have their own original version, which they can use to verify the transaction. This eliminates the risk of fraudulent activity without the need to involve a third party. Since none of participants owns the source of information, blockchain technology increases trust and integrity in the flow of information in the trustless environment.
In addition to the decentralization, blockchains are also distributed across peer-to-peer (P2P) network that is kept constantly synchronized and updated. Due to the very nature of network decentralization, there can never be any central points of failures within the system and a single computer cannot change them. If there is no hacking vulnerability in the system, there is no risk that the network will become malicious, which increases the reliability of the network. To hack a blockchain, a huge amount of computational power is required to access each instance (at least a 51% majority) of that blockchain and change all those instances simultaneously. There has been a debate that this makes small blockchain network vulnerable to attack but no verdict has been made yet. In any case, if the network is large, blockchain will be more secure.
The security of a blockchain network depends on its infrastructure. Blockchain’s architecture includes public and private options, which differ on certain key points that result in the different level of security of blockchain. When evaluating the blockchains, it is very crucial to choose right blockchain architecture depending on the business type and the area where it is to be implemented, as different architecture provides different security level. In the public blockchain, anyone can participate and read. Public blockchain can be secured by only allowing authorized participants to write. Whereas in a private blockchain ownership model, only authorized participants can participate and read. Again, the writing option can only be assigned to a few. As there are many ways in which blockchain technology can be deployed, utmost care must be undertaken while deploying a private blockchain setup because despite its inherent security features, attackers can manipulate the vulnerabilities present in its infrastructure. Therefore, it demands an infrastructure with in-built security features that limit all users, including root-users and administrators, from accessing confidential information. Moreover, any attempt to alter data or encryption keys by any unauthorized person should be prevented at all costs by incorporating latest security features. Hence, with the aid of these features, blockchain network will have the required protection to prevent malicious activities from inside as well as outside [8].
CONCLUSION
Considering all the features blockchain technology offers, it is a much better solution for storing and exchanging digital value than any existing technology as blockchain technology offers a way to reunite transparency and privacy. It’s the pseudonomity of the blockchain that allows it to remain transparent, because users are much more open in their way of interacting with technology, because actions cannot be traced back to an identity. While it is possible to verify and track all transactions in the decentralized ledger, the privacy offered by technology is one of the main reasons for its increasing acceptance among the general public. Cryptography, along with other practical methods of data security and privacy, is a key technology for the future advancement of the blockchain and its applications.
Blockchain has proven itself robust and tamper-proof technology and brings more reliable and convenient services. However, immaturity and complexity of the technology can lead to security vulnerabilities and difficulties in the development and practical use. As it is already discussed that blockchain transparency and privacy also depends on its architecture chosen for deployment, but with properly implementation of technology, blockchain definitely provides wider and positive implications. These transparency and privacy properties of blockchain play a very important part in increasing level of trust that the blockchain can offer. As technology is still in its development phase, new features will likely to be introduced as it grows, this is where transparency, privacy and security will really begin to matter.
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