Blockchain is defined as a decentralized and distributed digital ledger containing blocks of linked transactional data. New transactions depend on the previous transactions and thus are stored chronologically and securely. Users cannot delete or modify the chain without consensus from the network. Blockchain technology is used to create an unalterable or immutable ledger.

Blockchain is the underlying technology for cryptocurrencies. However, it is used in multiple industries where security is a primary concern, such as supply chain management, healthcare, legal, and government services.

How is blockchain security maintained?

Blockchain security is based on the following principles:

• Immutability: Each transaction on the blockchain is encrypted using a cryptographic hash function. This creates a unique digital fingerprint for each transaction. Cryptography helps protect user privacy and transaction information while ensuring data consistency. Because of this, tampering with a transaction on the blockchain without being detected is exceedingly difficult.
• Decentralization: Unlike banks and governmental agencies, blockchain is not controlled by a single entity. A network of computers (nodes) worldwide maintains the blockchain, making it extremely difficult for hackers to access and tamper with the data.
• Consensus: The nodes on the blockchain must agree on the validity of each new transaction.
• Keys: Each member of the blockchain network has a public and a private key. Everyone shares the same public key. A private key is an identification that is unique to each member. Suppose a person records a transaction using their private key. The transaction can be decrypted by network members using their public key. If a member’s private key has been tampered with, public keys won’t work. All blockchain activity is transparent and traceable to users.

How can blockchain be used in estate planning?

In any transaction between two people, there is a trust issue. The buyer can claim they already paid for a property or other asset. The seller can claim that they did not receive the money. A third party needs to oversee and validate the transaction.

Having someone supervise a transaction creates additional problems as they may be dishonest, make a bookkeeping error, or have a technology failure that makes it impossible for them to complete this job.

Blockchain is a decentralized system that does not require trust. It creates a ledger for the buyer and another for the seller. All transactions must be approved by both parties and are uploaded to the blockchain simultaneously.

Companies can use smart contracts to manage contracts on the blockchain without needing a supervising third party.

How does blockchain work?

There are a multitude of use cases for blockchain, and many more are expected in the future. An overview of steps in how blockchain works includes:

1. Record a detailed description of the transaction: Whether the transaction involves a physical or a digital transaction between two parties, a detailed description of the transaction is recorded as a data block.
2. Gain consensus: A key feature of blockchain security is the need to gain consensus among most participants on the distributed blockchain network. Consensus rules are determined in advance.
3. Link the blocks: After the data blocks are written, a cryptographic hash is appended to the new block, linking the blocks together. If data in the data block is changed, the hash value also changes as a marker of potential data tampering.
4. Share the updated ledger: The latest copy of the ledger is shared with everyone on the network.

What security threats impact blockchain?

While blockchain is secure, it is not immune to security attacks. Vulnerabilities in smart contracts, applications, and exchanges can open the door for hackers.

Common blockchain security threats include:

• Phishing attacks trick users into revealing their private keys.
• Denial-of-service (DoS) attacks allow an attacker to gain more than half of the computing power on a blockchain and reverse transactions or double-spend coins.
• Attackers can exploit smart contract vulnerabilities.
• A vulnerable network can enable routing attacks through which hackers can intercept data as it is transferred.
• Employee computers can be hacked.
• Weak spots in blockchain software code can be exploited.

How can you protect your transactions on the blockchain?

Many of the recommendations to protect yourself on the blockchain mirror recommendations for protecting your other accounts.

When using the blockchain:

• Beware of phishing attacks from hackers trying to get your personal information, including your personal key.
• Use two-factor authentication and strong passwords to protect all of your online accounts.
• Be careful with smart contracts.
• Store your private key in a secure wallet or hardware wallet.

Blockchain technology is based on cryptography, decentralization, and consensus to ensure trust. Each transaction within the blocks is validated and agreed upon by consensus. This eliminates single points of failure. Verify the type of public and private blockchain to evaluate its security risks.

Speak to a trusted advisor to help you develop your digital estate plan. Contact us and schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.