Table of Contents
Getting started with Blockchain Security
Blockchain is an essential distributed ledger technology that stores information and data in a way that is uncompromisable or affected by any form of hack and security threat. The distributed ledger system enables the duplication and distribution of data across computer networks, giving access to validators or designated nodes responsible for recording, vetting, viewing, and validating encrypted transactional data on the blockchain.
Blockchain relies on three core fundamentals (decentralization, security and scalability). These three underlying essentialities posit blockchain as a technology that is bereft of any form of middleman, secured, and capable of being expanded and upgraded at a fast pace.
Blockchain security is the ultimate risk management method put in place to achieve one of the underlying tenets of blockchain through incorporating internal and external best practices such as cybersecurity frameworks and assurance services towards achieving a risk-free transaction and eliminating the occurrence of fraud and other attacks. The super constructs of blockchain technology come with a standing security quality that ensures the risk-free nature of data structure through the consensus mechanism, cryptography, and decentralization. The consensus mechanism is made up of validators that oversee the integrity and ingenuity of each block of data blockchain transactions before validation.
The gnashing effects of cybersecurity have been in play since time immemorial. This has been some Achilles heels for every old and contemporary technology.
Blockchain falls into the new technology category caught in the mud fight of various cyberattacks from key industry players and externals. This pandemic of exploitations and security threats is possible by the fast pace of blockchain adoption and popularity among the people that have made its uses well known to everyone. Thus, the optimal usability and awesomeness have called for properly addressing integrity and security issues.
Blockchain Types in Relation to Their Security Measure
Blockchain networks each have unique peculiarities concerning who has access to the data and how they are granted. Blockchain technology can be categorized as private, public and consortium. Each category has its driving mechanism and access granting modalities, such as permission and permissionless.
A public blockchain is an all-entry network that uses an internet-enabled computer for its validation and consensus mechanism. The main characteristic of this type of blockchain is its decentralization property that allows unrestricted participation from users and validators, as well as an open-source software code that is available to everyone.
From the crypto-economics perspective, public blockchain governance is achieved through a method of cooperation among the distributed network. This system eliminates any form of centralized governance through the usage of either proof of work (PoW) or proof of stake (PoS) mechanism.
A well-known example of a public blockchain is Bitcoin which uses the concept of "bitcoin mining", where miners validate transactions by solving cryptographic problems. Miners stand to earn cryptocurrency as a form of incentive for their work. This method's incentivized nature serves as a motivation for those who want to join the network for validation.
A private blockchain is a permissionless network which requires the network's central governance or administrator to validate individuals before being allowed into the network. This type of blockchain is a restrictive model that limits participation and the type of transaction that can be carried out.
Private blockchains use an innovative process that is known as "selective endorsement" for verifying users' identity, access privilege and other authentication. This network is mostly used in organization grade level and business environments to oversee authorizations, record keeping, and authentication through the Proof of Authority (PoA) consensus mechanism.
A consortium blockchain is a hybrid of public and private blockchains made up of pre-existing participants preapproved by a central authority to form part of the consensus mechanism in the blockchain network. Often, public and private blockchains are the most popular but the uniqueness of an all-encompassing blockchain network that makes use of semi permission approach allows the partly decentralization of the blockchain network while still allowing a certain level of control over the network.
Consortium blockchain provides usability for various industries such as supply chain management, banking and internet application through the incorporation of Proof of work (PoW), Proof of stake (PoS), Proof of authority (PoA), as well as designated Proof of stake to achieve consensus.
Examples of Blockchain Cyber attacks and Fraud
Most people are still in oblivion about the difference between blockchain as a technology and blockchain as a network. The basic understanding of these two concepts forms the backbone of each successful cyber attack by internal and external players. Blockchain as a technology is highly resistant to all types of fraud and cyber-attacks because of its ultra-secure ledger of transactions. On the other hand, blockchain networks form the main ecosystem that consists of DAO, DeFi (decentralized finance), and all other blockchain companies. These ecosystems are the destination for every attacker due to their susceptibility to attacks and exploitations due to one vulnerability or the other. Below are some examples of successful attacks and frauds:
Cream Finance (Hack Attack)
Cream finance is a decentralized project that faced many hack attacks in 2021, leading to a cumulative loss of $129 million. The three waves of hack attacks came in different months. The first attack happened in February, costing the blockchain company $37 million. The second wave occurred in August when some hackers found a loophole in the cream finance source code, leading to the loss of $29 million. In October 2021, the last attack resulted in the loss of a mouthwatering $130 million worth of cryptocurrencies which amounted to the biggest heist in the blockchain ecosystem in 2021.
FTX (Crypto Theft)
FTX is one of the most accomplished cryptocurrency companies and a leading player. The company shocked the world when it declared bankruptcy in November 2022 due to the occurrence of crypto theft as a result of a successful malware attack on its apps. This exploit resulted in the loss of $600 million worth of crypto assets from its wallets.
Binance (Hack Attack)
Binance is the world's biggest cryptocurrency exchange platform with a market capitalization of $47 billion got a fair share of a hack attack on the 6th of October 2022 that led to the loss of $566 million worth of BNB (Binance utility token). This attack occurred when a hacker targeted the blockchain company's cross-chain bridges and stole the BNB tokens through artificial withdrawal.
The hasty countermeasure initiated by the company to foil the attack with their timely freezing of the account by the validators enables them to recoup more than 80 percent of the stolen tokens from the hackers. Thus, there was still a loss of more than 10 million dollars.
How Cyber Attackers Compromise Blockchain Security
Blockchain network has been the prime target for various attacks from unscrupulous elements inside and outside the industry. Many ways and methods are being implemented to exploit the vulnerabilities that come with the development of each blockchain network. Here we bring forward the four most frequent ways hackers exploit the blockchain network.
Sybil can be regarded as a multiple identity disorder where someone can use multiple identities for various purposes; this name was derived from a book about multiple personality disorder. In this method, the attacker can simultaneously create hundreds of accounts with false identities on the targeted blockchain network with the sole purpose of overwhelming and crashing the system.
Phishing is another tactic used by attackers to obtain customers' credentials. They achieve this by sending expertly designed emails to wallet owners asking for their wallet credentials and details using a fake embedded hyperlink as the form to fill. Having access to the customer's wallet, the attackers would proceed to make transactions on behalf of the real owners resulting in a loss on the blockchain network.
One of the main processes in the blockchain is mining, which requires a high level of computing power, especially in large-scale public blockchains. A 51% attack is an insider sabotage in which a miner or group of miners pulls together enough resources to corner more than 50% of blockchain network mining power. This gives them the ultimate power over the blockchain ledger, enabling them to manipulate that at will and activate centralization that's against the blockchain tenets.
Blockchain works best when there is interconnectedness or data transfer between one network and the other. Routing attacks happen in a stealth mode where hackers time their attack to when the transfer of data between blockchain and internet service provider is going on. This was a very dangerous attack with a high success rate because everything looked normal at the end of each participant. At the same time, the attackers successfully attacked the scene and stole confidential data in the process.
Blockchain security best practices
The basic and advanced blockchain security challenges are pure outliers surmountable with expertly advised tips and best practices. Here is some advice that can be implemented to take you off the clutch of all forms of cyber attacks.
- Secure your private keys
- Deploy a resilient and secure technological infrastructure
- Implement consensus mechanism
- Apply conventional security measures such as firewalls, software updating, and network segmentation
- Carry out smart contract testing before deployment
Blockchain is a revolutionary technology that touches the spectrum of human existence. However, the importance of blockchain to everyone calls for an in-depth understanding of the blockchain security challenges and the best practices to mitigate the loss of assets through one form of attack or the other. By implementing the best practices, you can eliminate hack attacks and realize blockchain technology's full potential and perks without any deterrents.