Immutability in Crypto

Immutable means resistant to any changes.

Applied to computing, immutable code represents information that cannot be changed after release. The same applies to immutability in crypto.

In fact, immutability is a key characteristic that makes blockchain stand out from all other digital systems. At this, it makes crypto payments secure and enables blockchain-based systems to reach true decentralization.

Yet, how does it work in practice? Let’s take a closer look.

Key Takeaways

• Immutability in crypto can help companies significantly cut costs in securing their IT systems.
• In a blockchain, every newly created block connects to the previous one through a hash. 
• Whenever you change data in a block, its hash changes too. Unless you control the majority of the network, making all other blocks in the chain change this hash would be impossible. Thus, the changes won’t apply.
• Immutability in crypto makes blockchain systems secure, contributes to their integrity and auditability, and facilitates dispute resolution.
• At the same time, it becomes a problem when hackers steal crypto or distribute sensitive information on a public ledger.

What is Immutability in Crypto?

Immutable code is, perhaps, one of the key perks that blockchain fans like to boast of on every corner.

And indeed, they have every reason to do so.

Companies spend enormous sums of money to prevent external attacks and protect their IT systems and business data from ransomware. At the same time, internal threats often remain outside their focus.

IT auditing becomes the next large cost category to help projects protect their data from rogue or corrupted employees. But what if there existed a much more simple and cost-effective solution that would still provide them with the same level of visibility and auditability?

Blockchain implementation can become a solution to this problem. Thanks to immutable code, one can be 100% sure that the data remains unchanged. 

Thus, companies that switch to the blockchain rails can enjoy an unprecedented level of data security. Moreover, they can significantly reduce associated costs. The auditing procedure, in turn, will become an easy routine that doesn’t require any additional data security software.

How Does Immutability Work in Crypto?

In order to understand what makes blockchain immutable, it is crucial to explain the key principles of how blockchain technology works.

Blockchain architecture

Simply put, blockchain represents a database that consists of subsequent blocks. It stores information about all transactions that have ever happened since the launch of its genesis block.

In this database, every newly created block connects to the previous one via a unique ID. This ID is obtained with the help of the hashing process. The contents of the previous block are encrypted via hashing. 

The next block, in turn, incorporates the hash of the previous one and applies the same procedure to the next bulk of data.

Note that the same principle works for both proof of stake and proof of work blockchains.

Hashing as the key source of blockchain security

In cryptography, a hash function converts an array of data into a compressed numerical value of a fixed length. 

For example, by encrypting the phrase “I love bitcoin” using the SHA-256 encryption algorithm you will always be getting the same outcome:

However, if you change in the slightest the input value, e.g. make one letter capital, the output result will be totally different:

The same principles work in blockchain, of course. If a malicious actor tries to change a single transaction, the hashing of the block that contains this transaction will change as well. 

And, since all blocks are connected, they all will change, too. As you see, blockchain code is not perfectly immutable. Luckily, such an attack is very difficult to perform.

51% attack on blockchain

In order to change any information recorded on the blockchain, one has to gain control over at least 51% of its hashing power. While this is possible in theory, in practice it is hardly achievable.

The point is, the resources needed to conduct such an attack are much higher than the profits that one may get with its help. For example, Crypto51 states that at the time of writing, 1hr attack on Bitcoin costs over $1 million USD.

At this, the attack turns out to be unprofitable, and, therefore, useless.

Low-cap blockchain projects should not relax, though, as they still can fall victim to such attacks. History knows a few examples of successful attacks on such projects.

Yet, large blockchains like Bitcoin or Ethereum are outside of hackers’ reach.

Thus, all the information recorded on these blockchains can hardly ever be changed. Therefore, it remains immutable.

Advantages of Immutability 

Prior to Bitcoin's release in 2009, there have been many attempts to create digital currencies. For example, eCash featured in the 90s even provided its users with some level of anonymity similar to modern cryptocurrencies.

Yet, none of those digital assets could boast of the same level of immutability.

In fact, immutability in crypto is one of the key traits that have made this technology so popular. Here are the benefits it provides:

1. Security. Thanks to immutable code, it is nearly impossible to alter transactions on the blockchain. This contributes to the security of blockchain-based networks as they are less prone to hacking.
2. Integrity. Immutability in crypto excludes the possibility of any historical records being changed. All the new transactions are subject to validation which contributes to the integrity of all the records.
3. Auditability. Anyone can access information about all transactions recorded on public blockchains. This simplifies the auditing processes. Moreover, the possibility to prove the immutability of data gives a serious advantage to the companies that have to comply with specific regulations.
4. Dispute resolution. Blockchain can help to resolve disputes in a much more efficient manner and save billions of dollars in different verticals.

Thus, blockchain stands on top of all centralized IT systems that have been created up to date.

Risks Associated with Blockchain Immutability

Immutable code can sometimes play into the hands of bad guys, too. Remember that fraudulent activities in crypto are just as immutable as legit ones. 

As technology evolves, hackers invent more sophisticated ways of stealing end-users’ funds. Even the smallest bugs in the smart contract code may result in severe money losses. 

Another way that hackers often rely on is gaining control over digital signatures to steal money from blockchain projects. Such a threat is only relevant for centralized solutions that rely on a small number of validators to verify transactions.

At this, the amount of crypto stolen breaks new records every year.

An additional risk that immutability imposes refers to sensitive data. Someone may get illegal access to private information and distribute it across public blockchains. The impossibility to remove this data from the system entails high monetary losses to all the parties involved.

For end-users, withstanding such risks is not very difficult, though. Proper internet security hygiene combined with the use of non-custodial DeFi solutions can help to bring down all these risks to the minimum.

Immutable Code as the Key Requirement for True DeFi

Yet, despite all these threats, immutability in crypto is the key parameter that could help its users gain true independence and ensure their digital security.

The possibility to change the code of a smart contract eliminates all the advantages that DeFi provides. 

If there is a centralized party with the capability to do that, be sure that earlier or later some fraudsters will appear to use this feature for their own advantage. Immutable code is the only solution to this threat.