Written by Dr. Marco Balduzzi
What security challenges do businesses inevitably face when implementing blockchain technology?
The 2024 Security Prediction Report highlights how threat actors will further target private blockchains as more enterprises leverage the technology for its beneficial features and cost savings. did. As with any technology, cybercriminals relentlessly seek ways to exploit systems and use them for their benefit. Although this is not a new blockchain concept, the scope and severity of risks associated with this technology have continued to change over the years.
It would be beneficial for the industry to be aware of and vigilant about the security challenges associated with blockchain. To investigate this, we first investigated past developments, current trends, and future predictions related to this technology. We then took a closer look at its use cases, the threats it addresses, and the business implications that companies can deal with if an attacker compromises their systems.
In Part 1 of a three-part series on private blockchain security issues, we discuss the evolution of blockchain and how enterprises are adopting this technology in the form of private and hybrid blockchains.
Blockchain: past, present and future
The introduction of Bitcoin by Satoshi Nakamoto (thought to be a pseudonym) in 2008 marked the beginning of the blockchain revolution. Bitcoin, the first decentralized cryptocurrency, was designed to enable peer-to-peer transactions without the need for intermediaries such as banks. Its underlying technology, blockchain, provided a secure and transparent ledger where all transactions are recorded in a chronological and immutable manner. Bitcoin’s main function is to act as a digital currency, and it quickly gained popularity due to its decentralized nature, security, and promise of financial freedom.
Bitcoin demonstrated the power and potential of blockchain technology, but its capabilities were relatively limited to digital currency and store of value. This limitation has led innovators to consider how the underlying blockchain technology can be leveraged for more complex applications. Among these innovators was Vitalik Buterin, a young programmer who envisioned a more versatile platform that could support decentralized applications and perform complex transactions.
In 2015, Buterin’s vision became a reality with the launch of Ethereum. Unlike Bitcoin, Ethereum was designed not just as a cryptocurrency, but as a comprehensive decentralized platform. Ethereum introduced a new concept called “smart contracts.” This is a self-executing contract where the contract terms are written directly into the code. These smart contracts automatically execute transactions when predefined conditions are met, eliminating the need for intermediaries and greatly expanding the potential use cases for blockchain technology. .
The Ethereum blockchain is programmable. This means developers can create their own decentralized applications (dApps) and deploy them on the network. This programmability is made possible by the Ethereum Virtual Machine (EVM), a decentralized computational engine that executes smart contracts. EVM makes Ethereum a Turing-complete system that, given enough resources, can perform any computation that can be described by an algorithm.
Several organizations and business categories have successfully implemented blockchain technology, demonstrating its versatile applications. In the financial sector, companies like JPMorgan Chase have implemented blockchain solutions to increase the efficiency of payment processing and settlement, significantly reducing transaction times and costs. The supply chain sector is seeing significant improvements as companies like IBM and Walmart use blockchain to track products from origin to shelf, ensuring product reliability and safety. In the healthcare field, institutions such as Mayo Clinic are leveraging blockchain to protect patient records and facilitate data sharing while maintaining privacy and security. The real estate industry is also benefiting, with platforms like Propy streamlining real estate transactions by using blockchain to process contracts and title transfers, reducing the risk of fraud and speeding up the closing process. .
The following diagram shows the rapid evolution of blockchain technology in recent years. Bitcoin has grown steadily since its introduction and continues to perform around 500,000 transactions per day on its public network, while Ethereum has grown exponentially to over 1 million transactions per day . This highlights the huge potential of data-centric blockchain networks compared to traditional financial networks like Bitcoin.
Figure 1. Bitcoin, Ethereum, and Litecoin transactions over the years.
Source: bitinfocharts.com
We expect this trend to continue in the future. In the following figure, Precedence Research estimates that the market size will grow from USD 16 billion this year to over USD 2 trillion by 2032, at a compound annual growth rate (CAGR) of 85%.
Figure 2. Blockchain technology market size, 2022-2032
Source: precedenceresearch.com
This development of blockchain technology is well illustrated in the following diagram by Gartner. Analysts predict that this technology will reach full maturity next year (2025). The years before 2010 are considered the founding years when the blockchain paradigm was introduced as a platform for exchanging cryptographically signed information in a decentralized format (such as Bitcoin). From 2010 to 2020, more advanced forms of blockchain networks emerged, led by Ethereum, which provides a platform for hosting internet content in a decentralized format, and more recently, enabling the running of decentralized applications. I made it.
Figure 3. Gartner blockchain spectrum
Source: Gartner.com
As expected, the result of this evolution is a broader application of blockchain technology, as reported by Fortune Business Insights in the image below. The BFSI (Banking, Financial Services and Insurance) sector still represents the largest industry due to the historical adoption of traditional blockchain in financial services, but other industries are also starting to invest in this space. I’m looking forward to it. For example, organizations in the manufacturing sector are now extensively using modern blockchain networks to track the production of goods and improve supply chain traceability.
Figure 4. Global blockchain technology market share by industry, 2023
Source: Fortunebusinessinsights.com
As shown in Figure 5, this evolution was observed in all regions as reported by Precedence Research.
Figure 5. Blockchain technology market share by region, 2022
Source: precedenceresearch.com
The emergence of private blockchains
In the rapidly evolving landscape of blockchain technology, private blockchains and hybrid blockchains have emerged as attractive solutions tailored to the specific needs of enterprises. Unlike public blockchains, which operate on decentralized networks that are accessible to everyone, private blockchains are restricted environments where access is controlled by a single organization or consortium of entities. This permissioned nature allows businesses looking to take advantage of blockchain technology while maintaining tight control over their data and operations, as it provides greater control over network governance, enhanced privacy, and faster transaction speeds. , private blockchains are an attractive option.
Private blockchains are designed to address several key challenges facing businesses today. One of the main advantages is that it ensures data confidentiality. Industries such as finance, healthcare, and supply chain management need to protect sensitive information from unauthorized access. Private blockchains provide a secure environment in which data can be shared among authorized participants without exposing the data to the broader public. This is especially important for businesses that need to comply with regulatory requirements and protect their intellectual property.
Another big advantage of private blockchains is that they can provide faster and more efficient transaction processing. Because the network is limited to a known set of participants, the consensus mechanism can be optimized for speed and efficiency, reducing the time and computational resources required to verify transactions. This makes private blockchains ideal for applications that require high throughput and low latency, such as real-time financial payments and supply chain tracking.
Additionally, private blockchains provide greater control over network governance. Enterprises can establish their own rules and policies for participation, data access, and transaction validation to ensure that the network operates in line with their unique business needs and regulatory requirements. This level of control allows businesses to create customized blockchain solutions that can be seamlessly integrated into existing systems and processes.
In addition to enterprise contexts, hybrid blockchains combine elements of both public and private networks to provide flexible solutions tailored to specific business needs. Hybrid blockchains allow organizations to maintain private sensitive data on a private ledger while leveraging the security and transparency benefits of public blockchains for certain transactions. This dual approach allows companies to optimize their use of blockchain, balancing the need for confidentiality with the benefits of decentralization. For example, a company may use a private blockchain to manage internal operations while using a hybrid blockchain to interact with external partners and customers.
The following diagram shows how private and hybrid networks have gained popularity and captured approximately 40% of the market share.
Figure 6. Blockchain Technology Market Share by Type, 2022
Source: precedenceresearch.com
The following table summarizes the key differences between public networks such as Ethereum mainnet and their private counterparts.
PublicPrivateSecurity is secured by the interaction of thousands of independent nodes run by individuals and miners around the world. A small number of nodes are typically controlled by one or a few organizations. Although these nodes can be tightly controlled, the chain can be compromised in case of a 51% attack. Performance is usually poor. High throughput can be achieved using Layer 2 scaling solutions. Typically built on high-performance nodes controlled by the organization. Layer 1 typically provides higher transaction throughput. CostPublic There is no cost to connect to Ethereum, but each transaction incurs a gas cost, which must be paid in Ether. It mainly reflects the effort of setting up and managing the chain. and the server that runs it. There are no other costs (such as transaction costs). Node Permissions Anyone can set up a node on public Ethereum. Only authorized nodes can participate in the private network. Privacy Sensitive information must be stored and transmitted off-chain, as all data written can be viewed by anyone. Access to data written to a private chain can be controlled by restricting access to the network and on a more granular basis using access controls and private transactions.
Table 1. Differences between public and private blockchain networks
In the next article in this series, we will explore the business drivers behind the adoption of private and hybrid blockchains in organizations. This type of blockchain has been developed to meet the needs of modern enterprises, offering improved performance, fewer errors, increased automation, and lower costs. As a result, it’s no surprise that more and more organizations are adopting the blockchain paradigm. This trend will be discussed in the next article, including a real-world use case.
