Five Ways Blockchain Technology Helps Transform Businesses Part 3

Enhanced security and why it is important.


Blockchain networks are by design more secure than traditional file storage and compilation systems because they use a combination of cryptography and consensus algorithms.

Because of this, all the information on the Bitcoin network and most other cryptocurrency networks are immutable. This is the reason why financial blockchain networks work for peer-to-peer transactions. When a party sends money to another party on a blockchain network, a record about this transaction becomes a part of the blockchain, which means that it is impossible to change and it will stay on the network forever. While most people have heard about the blockchain technology in connection with financial transactions and cryptocurrencies, immutable records on a blockchain could be almost about anything. For example, a transaction could contain data about cargo leaving a destination or arriving to a port so that all involved parties could see the exact location of the cargo. A transaction could contain medical records of patients or data about weather on a farm in a particular location.

This means that blockchain technology is a great solution for any business that is looking to make sure that the data it has does not get deleted or damaged, be it accidentally by error or on purpose.


How blockchain technology protects the data

To protect the data, a blockchain network uses a consensus algorithm. The two most popular consensus algorithms on blockchain networks today are proof of work and proof of stake.

In proof of work, creators of blocks of a blockchain need to come up with a cryptography hash for the data that they want to add to the blockchain. The hash needs to correspond to the current level of difficulty of the network.

In cryptography, a hash for a set of data is a string of data that is much shorter than the original hash.

For example, let’s say there is a cryptography algorithm CA and in this cryptography algorithm the set of data (1, 2, 3, 4, 5, 6, 7, 8, 9) has a hash of A1. On the Bitcoin network and other blockchain networks, sets of data are larger and hashes are more complex, but they work in the same way.

For example, block #526420 of the Bitcoin blockchain contains data about 2409 financial transactions that have occurred on the Bitcoin blockchain, including amounts, addresses of recipients, timestamps, and more, yet all this information is summarized via a short hash of 00000000000000000026d4146297c1961316994189aeebebd4f8e42575151095. The Bitcoin blockchain is fully transparent, which means you can check all the information about all the transactions for yourself on a Bitcoin blockchain explorer. The page for a block contains a summary and all the data for all the transactions that the block includes. For example, the page for the block #526420 is located here: You can see the summary on top of the page and if you start scrolling down the page, you will be able to see the data for all 2409 transactions. As explained above, on a different blockchain this data could be about something else. In the example with cargo, it would be possible to enter a unique identifier into a blockchain explorer and get all the information about the cargo changing hands and its current location knowing that no party that has added a record to the blockchain could change the record.


How hashes make the data secure

In cryptography, a set of data can have one and only one hash in one cryptography algorithm. This means that no other set of data will return the hash of A1 using the cryptography algorithm CA.

On blockchains, the next block of a blockchain contains the hash of the data included in the previous block.

Let’s say that there was an internal company blockchain and the blockchain contained all the internal company communications. Let’s also say that somebody wanted to change the contents of one of the emails that he or she has sent in the past. With regular data storage solutions, this is a simple task. With a blockchain, this is simply not possible because if the party were to change data, the hash for the data would change. Because the data would have a different hash, the block with the new data would not “fit” into the blockchain. The software would simply reject the new version of an old block.

With hashes, anyone can generate the hash for the data if they have access to a cryptography algorithm, but it is not possible to restore the data if all you have is a hash. This makes it really easy to check the validity of the data.

Let’s say that you have sent a large set of data to a friend and you want to make sure that the data did not get corrupt or damaged during the sending process. With hashes, you have an easy way to check that the other party has the correct data. All you have to do is ask the party for the hash. In the example above, with (1, 2, 3, 4, 5, 6, 7, 8, 9) having a hash of A1, you can set the data and then ask for the hash. If you get A1 as an answer, you know that the party has the correct data. If you get something else, you know that there is a problem somewhere and the data is damaged.

Here’s how and why blockchains can save businesses a lot of money. Let’s say that (1, 2, 3, 4, 5, 6, 7, 8, 9) is highly confidential data and you want nobody else but the receiver get access to it. At the same time, it is critically important to preserve the security of the data and make sure that the other party has received the correct data. This is the issue that exists in many industries today, including the financial services industry and the medical records industry. With medical records, it is critical that doctors keep the data private, yet it is also critical that when the data changes hands, it stays the same.

Typically, sending data in a secure way, complying with all the regulations and verifying the validity of data is more expensive than using conventional email to send something without having to verify the validity.

With blockchains, only the sending step has to be secure. You can exchange the hashes with other parties openly and still keep the data secure. You can send the data in a secure way and then inquire about the hash in any way you want because even if someone intercepts the information about the hash, they would not be able to do anything with it. Having the hash of A1 is useless without the data because it is impossible to restore the data. You can have the hash out in the open, yet the data will still be secure.

Practically speaking, this means the steps you need to take to verify the data are less expensive and can be automated, with also means less work for an organization or a person. All of this makes blockchains a really attractive solution for businesses that work with sensitive data.