Despite the enthusiasm, blockchain is not a solution for all cybersecurity risks; but its unique features will undoubtedly enhance cybersecurity for some large-scale networks. Certainly, blockchain’s application is much broader than just in the cryptocurrency sphere.
What is Bitcoin and in turn, why does it require blockchain technology?
Bitcoin utilises a peer-to-peer network to authorise transactions made with the currency.
To initiate a transaction:
A payer cryptographically signs a transaction to transfer the bitcoins from him or her to the payee, then sends the signed transaction to some nodes in the network. Those nodes share the transaction with their neighbours.
A node receiving the transaction verifies that the payer signed it and that he or she is the owner of the bitcoins that he or she attempts to use.
The node then authorises the transaction by solving a difficult mathematical problem and, in so doing, creates ‘proof’ in the form of a hash. Additional information that is included in the block is the hash of the previously authorised block.
These blocks create a chain and every block identifies the immediately preceding block. Upon successfully authorising a transaction, a node sends the ‘proof’ to all its neighbours.
They then send the information to their neighbours and so on. Finally, the nodes in the network ‘agree’ that the payer’s bitcoins have been transferred to the payee.
Why is blockchain technology attractive to the public and private sector?
The Bitcoin protocol makes certain that if a majority of processing power − not just a majority of identities − follows the protocol, the blockchain cannot be interfered with.
We are then left with a ledger of shared information that stores the history of the blockchain or receipts of transactions using complex hashing and encryption. And when new information is presented, to be added to the blockchain, it must be accepted by a robust consensus mechanism. This template attracts public institutions and private businesses or people wishing to enhance the security of their everyday operations, making it less likely to be hacked and eases the traceability of transactions.
Are there any examples of blockchain technology usage today?
Recently, blockchain technology was trialled in the administration of benefit payments. Perhaps more exciting is the trialling of the integration of blockchain in the UK Land Registry. Its research team completed a dummy transfer and found that blockchain could enable speedier transactions, greater transparency and higher levels of cybersecurity.
Furthermore, blockchain-based cybersecurity services are being considered for critical UK infrastructure, such as nuclear power systems, electricity distribution grids and flood defence systems.
This blog was written by Derek Stinson.
For all questions regarding the topics raised in this blog, please contact a member of our team of digital asset legal experts.