Do anything online, and the subject of security immediately follows—and for good reason.
It’s no surprise that the issue of security is more immediate for cryptocurrency and blockchain as a whole. After all, it involves people’s finances and investments.
As technology continues to evolve, so should security.
What Is Blockchain Security?
It is a comprehensive risk management system that protects the blockchain network against fraud and attacks. It’s significantly more complex than regular web security because the blockchain industry itself, and the businesses within, are much more complicated than traditional organizations.
Blockchain incorporates cryptography in its whole universe. This system depends on decentralization and consensus to operate effectively and securely.
It functions in blocks, hence its name. Each block contains essential records of transactions and links up with another down the line. All transactions are transparent and, more importantly, remain encrypted once recorded.
In theory, it is nearly impossible to intrude on the blockchain. It is safe, fast, and private, which paved the way to redefine the ecommerce industry.
But just as blockchain was made possible because of the intelligence and cunning of humans, so do cyberattacks and fraud.
Challenges in Blockchain Security
Blockchain is expected to be worth $19 billion at the end of 2024, which is a massive jump from the estimated $4.5 billion in 2020.
This growth can be attributed to business leaders pledging their support and funds to the ledger industry. Global honchos have said they would guarantee at least $1 million in investments in the blockchain. While cryptocurrency prevails in the financial sector, other niches have caught on.
According to Statista, businesses in finance only account for 30% of the blockchain market value. The rest is spread out in different sectors that benefit from the safety and privacy the technology offers.
And because blockchain has enticed so many sectors, it is even more attractive to cybercriminals and malicious parties hunting for vulnerabilities in such systems. No matter how advanced the technology, privacy and safety are not absolute.
The following are the most common security attacks on the blockchain industry:
While not an issue of security per se, a 51% attack happens when a majority of blockchain miners decide to control and alter the crypto company itself. They could decide to prevent new transactions from coming in or reverse ongoing transactions, which may result in double spending coins.
The term combines cryptocurrency and hijacking—this type of cyber attack refers to the hijacking of a person or company’s computer or device to mine for cryptocurrency. Unlike the 51% attack, where motives can be blurred between control and profit, cryptojacking is nearly always done merely for profit. In many cases, such an incident can go undetected, and the victims will only realize the attack happened because of the loss of their crypto assets.
The Coincheck heist of 2018 could be classified as cryptojacking. The crypto industry called it one of the biggest blockchain attacks, as hackers stole $530 million from users of what many referred to as Asia’s leading bitcoin and cryptocurrency exchange. The stolen currency was NEM, an obscure and new crypto player at the time.
Flash Loan Attacks
Individuals and businesses can access crypto loans without collateral through flash loans. The process involves entities borrowing funds that must be returned after a single transaction block, hence the term flash loan.
Because it is relatively easy to access, malicious actors have taken advantage by stealing funds or manipulating the prices of a decentralized finance smart contract. The main attack is on the temporary liquidity brought about by the loan.
Also known as the pump-and-dump scheme, rug pulls in crypto is when a group hypes up a certain token to entice investors. The price skyrockets, and then that group runs away with the investment at its peak. It’s quite a creative stunt that involves a lot of planning as the crypto criminals back up an up-and-coming token and make it seem legit to many investors.
While blockchain seems incredibly sophisticated security-wise, some old social engineering attacks still work on it. After all, blockchain technology still uses passwords or passphrases for access.
Cybercriminals trick crypto users into giving up private keys and personal information by posing as legitimate blockchain entities. As they would with traditional cyber attacks, criminals send phishing emails to potential victims. Those who replied or clicked the included link become the weak point for blockchain security issues.
Distributed denial-of-service (DDoS) attack is another common security breach that can be used to threaten blockchain technology. Cryptocurrency is an enticing target for hackers because of the traffic it generates, particularly for companies leveraging the most popular bitcoins and altcoins. This attack involves overloading a target with bogus traffic so the hacker will have time to cripple the website or service.
The attack occurs when a bad actor or malicious group creates multiple fake identities for nefarious purposes on the blockchain. There are a few types of Sybil attacks, one of which is a direct hit where the malicious node interacts with honest nodes to be manipulated to act according to the cyber criminal’s interests.
An indirect Sybil attack is when the malicious nodes interact with multiple nodes related to the main honest or authentic node. The cyber attack happens through proxy nodes, making the crime harder to track or detect.
The Human Element: Even More Vulnerabilities
According to the 2022 SonicWall Cyber Threat Report, 2021 saw a 19% increase in cryptojacking attacks around the world, which totaled 12 million attacks from around 97 million tries.
Most blockchain security concerns crop up not necessarily because of the underlying technology. Certain attacks can occur because of human vulnerabilities.
The most high-profile targets of cryptojacking are governments and the healthcare industry. But within these large organizations are a few employees who will unhesitatingly click on a phishing link. One simple incident could make the entire company vulnerable to attacks. And a single attack could cost millions of dollars.
All employees must be briefed on the best practices to keep themselves safe from cyber attacks. And as a minimum safety protocol, each computer must have the best antivirus software.
How To Prevent Blockchain Security Problems
Every problem, no matter how complex, has a solution. Here are the top ways to protect the blockchain from common crypto attacks:
Ensure All Layers in the Blockchain Architecture Don’t Have Loopholes
Blockchain architecture is composed of layers. In most cases, it is divided into the following:
Each layer has its own purpose in overall operations. Many companies prioritize certain layers over others when it comes to security.
For example, data and networks are the most susceptible to cyber attacks, so they are the most protected in the blockchain architecture. Cybercriminals will simply try phishing to get information, or miners will decide to hit the protocol itself and deploy a 51% attack.
Each layer has weaknesses, and they must all be protected from vulnerabilities. Leave nothing for malicious parties to take advantage of.
Use Proof of Stake
Blockchain works on a consensus mechanism that is either proof-of-stake or proof-of-work. Both aim to keep blockchain secure, but proof-of-work requires a lot of computational requirements done by miners. With proof-of-stake, decisions are made by users in control of the majority of coins, which would prevent 51% attacks.
In contrast, verifying transactions is more competitive in proof-of-work, leaving miners to find ways to stay ahead.
Use Secure Routing Protocols
Routing protocols are designed to detect, monitor, or counteract routing attacks, including Sybil attacks. It is important to ensure that routing protocols are secure. This can be done through legitimate certificates.
Vet Smart Contracts Meticulously
One of the many advantages of blockchain is the use of smart contracts, which ensure quick and secure transactions. To prevent smart contracts from being leveraged in cyber attacks, they must be thoroughly vetted. Experts must check them over for bugs before they are implemented. This can effectively eliminate or significantly reduce the risk of flash loan attacks.
Build a Dynamic Blockchain Community
Part of the success of blockchain is that it depends on users rather than regulatory entities. With a dynamic community that is constantly updated on crypto trends and activities, they have more of a stake in the technology and are eager to provide a safe space for all members.
Above all, safety and security education in the community space is critical so every individual knows how to protect themselves. As they become more aware of security vulnerabilities, they become more vigilant for themselves and others.
Many companies have either incorporated blockchain into their operations or are planning to do so in the near future. But while blockchain is quite secure, its safety is not absolute. Malicious parties will always find ways to make money or take control as they utilize their knowledge of technology.
Fortunately, there are many ways to prevent blockchain breaches and fraud. The most important protection of all is educating people about blockchain vulnerabilities and safety. After all, 95% of data breaches are due to human error.