Multi-million dollar cryptocurrency hacks are giving a bad name to the crypto industry. But what if we told you that popular blockchains like Bitcoin (BTC) are “unhackable” and hacks involving cryptocurrencies actually occur on exchanges, crypto wallets, and smart contracts? In this article, we explain why blockchains can’t be hacked.
Why Can’t Blockchain Be Hacked?
Public blockchains are touted as “unhackable” because of their decentralized and distributed nature. Take the Bitcoin blockchain, for example. The Bitcoin blockchain is run by thousands of computers called miners that are distributed all around the world. The open nature of the Bitcoin blockchain allows anyone with the basic infrastructure to become a miner or to run a validator node.
The decentralized and distributed properties of public blockchains like Bitcoin remove a single point of failure. If one miner is compromised, thousands of other miners will prevent the hacker from altering data on the blockchain.
In order for an attacker to hack a public blockchain like Bitcoin, they will have to gain control of at least 51% of the total number of operating Bitcoin nodes. This is because the Bitcoin blockchain follows the longest chain rule, which states that the longest version of the Bitcoin blockchain is considered the valid one.
The hacker will have to accumulate sufficient computing power to overtake the honest chain, which will normally host the largest number of mining nodes, will have the highest computational power and will grow the fastest.
Therefore, hacking a blockchain that has a large and diverse group of miners and nodes is said to be extremely difficult and unprofitable for hackers. This is the main reason why popular blockchain like Bitcoin can’t be hacked.
What are the Technologies That Protect Blockchains from Hacks?
In addition to a public blockchain’s decentralized and distributed nature, a cryptographic process known as hashing algorithm keeps blockchains secure from hacks. Hashing algorithms scramble data into randomized alpha-numeric text of a fixed length called hashes. Hashed data can not be unscrambled and decoded. Although they can be checked to verify their authenticity.
Blockchains use hashing algorithms to protect transaction data. Hackers can not alter transaction data as hashes cannot be reverse-engineered.
How Does Consensus Mechanism Prevent Blockchain Hacks?
Public blockchains are decentralized in nature without any centralized authority to check the data that is being recorded on a blockchain. So, who is protecting the blockchain and keeping all participants in check? This is where the consensus mechanism comes into play.
Consensus mechanism refers to a system where distributed blockchain nodes come together to agree on the state of the blockchain. Here, a new block is only added to the blockchain when the majority of blockchain nodes agree that transactions included in the new block are valid.
Does Crypto Economics Prevent Blockchain Hacks?
Incentivized crypto economics adds an extra layer of security that makes popular blockchains like Bitcoin unhackable. Crypto blockchains incentivize participants to act honestly by rewarding honest participants with crypto rewards, while dishonest activity is discouraged with the help of penalties.
For example, the Bitcoin blockchain creates an environment for a successful PoW consensus mechanism by rewarding miners with BTC tokens for proposing and adding new blocks to the blockchain.
Similarly, on the PoS blockchain Ethereum (ETH), stakers are rewarded ETH tokens for operating honestly to attest, validate and add new blocks. Dishonest Ethereum stakers are penalized in an event called slashing, where stakers lose a part or all of their deposited collateral.
If Blockchains Can’t Be Hacked, Why Are There So Many Crypto Hacks?
The crypto hacks that are prevalent today do not take place on the consensus or settlement layer of the blockchain. Most crypto hacks are occurring on applications, cross-chain bridges, crypto wallets, smart contracts and crypto exchanges.
Hackers exploit vulnerabilities and obtain private keys to siphon away crypto funds. In 2023, cryptos worth about $200 million were stolen from a peer-to-peer crypto transactional network called Mixin Network after hackers attacked their cloud database.
Elsewhere, a crypto exchange called Poloniex lost over $100 million in crypto funds after hackers managed to access one of its crypto wallets.
Are All Blockchains Unhackable?
The concept of unhackable blockchains has been tested several times in the past decade. While popular blockchains with diverse and large miner and validator groups like Bitcoin and Ethereum have never been hacked, we cannot say the same for smaller blockchains.
The most well-known way to hack a blockchain is via a Sybil attack called the 51% attack, where the hacker tries to control the majority of a blockchain’s computing power. As discussed earlier, a 51% attack has never been successful on Bitcoin and Ethereum due to it being unprofitable and expensive for hackers to attempt.
Can Quantum Computing Hack Blockchains?
Quantum computing is a technology that focuses on creating computer systems that can perform mathematical calculations faster and more efficiently than currently possible with classical computers.
Although quantum computing still remains an area of research and development, the technology is touted as a significant long-term threat to blockchain security. Experts believe that advancements in quantum computing will create computers sufficiently powerful enough to conduct brute force attacks on blockchain security models.
However, the blockchain community is proactively researching and developing quantum-resistant algorithms to mitigate this threat. The race to upgrade cryptographic standards before quantum computers become a practical threat is on.