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John Martin 15 May 2024 ◦ 11 min read

Blockchain vulnerabilities: Safeguarding the future of crypto

Blockchain vulnerabilities: Safeguarding the future of crypto

Blockchain is a digital "ledger" that stores transactions in such a way that they are difficult to fake or change. As a result, these technologies have enormous potential for managing cryptocurrency assets and transactions as well as facilitating the use of smart contracts, finance, and legal agreements.

Security is paramount in the realms of cryptocurrencies and blockchain technology. As the adoption of blockchain continues to surge, there are risks associated with the vulnerabilities in this innovative technology. Understanding these vulnerabilities and implementing robust security measures are crucial for safeguarding integrity and trust in blockchain networks. Let us now delve into the world of blockchain vulnerabilities and explore strategies to combat them effectively.

What are blockchain security threats?

The crypto industry is threatened by hackers and intruders seeking to exploit the vulnerabilities in the system. The blockchain security ecosystem has faced four serious attacks that, for some reason, have remained hidden from the public for a long time. The details of these blockchain threats are as follows:

  • Scale Management: The first threat from this list that the security blockchain has faced is how it handles the scale of data. It has limited capabilities, which makes it vulnerable to transferring large amounts of data, causing failures or long wait times. The solution was to integrate new technologies such as artificial intelligence and improve inter-blockchain communication to maintain efficiency.
  • Smart Contracts: Smart contracts are computer programs that are part of the blockchain security technology. They perform certain actions automatically; however, these smart contracts may run into problems related to how they are programmed. One of these problems is called "Re-entry,” which can create a cycle that leads to the wrong movement of money.
  • Secret chains and mercenary mining: Another vulnerability on the list of blockchain security threats is mercenary mining. Selfish mining is a fraudulent method that directly attacks the protection of blockchains from unauthorized access. It consists of secretly conducting transactions in a hidden chain. When the hidden chain is longer than the real chain, the original chain becomes useless.
  • Secret Tokens: Double spending is one of the most common scams in the blockchain. It consists of simultaneously sending tokens from one wallet to two wallets. The purpose of this practice is to duplicate assets. However, owing to the development of blockchain security analysis and the combination of cryptographic technologies with network consensus mechanisms, it is almost impossible to duplicate the same token.

Understanding blockchain vulnerabilities

Attack on the PoW system

Because everything in the proof-of-work system is tied to power, the main way to attack it is to gain the required power of 51% and be able to generate most of the blocks, which will allow you to rewrite them at will and benefit from it. Blockchains based on the PoW algorithm are now the most common because most cryptocurrencies are created in the image and likeness of Bitcoin. This is how Litecoin, Ethereum, and hundreds of other networks work, for example, Vertcoin and DASH.

The 51% attack does not require special skills, and the main requirement is to have finances for equipment. In some cases, you do not need any big money, and $200-300 is quite enough. However, in the case of Bitcoin, the cost of attack equipment is estimated to be millions of dollars because this method is not suitable for everyone (or rather, almost no one). However, one can make another attack, of course, without earning anything, but pretty much spoils all network users' nerves.

A spam attack (DoS attack) is a type of attack in which the attacker gets nothing. Instead of trying to get the opportunity to generate most of the blocks, an attacker can simply occupy most of the blocks generated by others. Because speed is the main problem of PoW blockchains, sending a large number of small transactions paralyzes the network because the block is limited in size. For example, in a Bitcoin network, one block holds 500 transactions and weighs 1 MB.

During the hash wars with Bitcoin Cache in 2017, Chinese miners clogged the Bitcoin blockchain with such spam transactions; the transfer fees increased to $ 50, and one transaction could hang in the sending pool for up to three days. Thus, the supporters of BCH proved the inefficiency of Bitcoin. There were such situations in Ethereum in 2018 when unknown addresses sent heaps of tokens in a circle of several addresses. In general, this entails commission costs on the part of the attacker and does not bring profit but complicates the lives of others.

Attack on the PoS system

As with any other blockchain, the most basic and profitable way to carry out an attack is to obtain a majority. However, most of the tokens of the attacked blockchain are needed here, not the capacities, because the PoS algorithm allows the generation of blocks exactly to the one who has the majority of votes. Currently, we do not see any examples of successful implementation of the PoS algorithm, but Ethereum is working on its transition (albeit slowly).

However, we have valid examples of DPoS algorithms such as EOS, BitShares, and NEO. They differ from pure PoS in that blocks are generated not by anyone but by delegates chosen by all users. All existing systems are centralized, and most tokens in each system are owned by a limited number of people; therefore, it is difficult to carry out an attack. Of course, we can talk about this purely from a speculative perspective that the owners of most tokens can carry out such an attack, but this is not profitable primarily for themselves because they risk the value of their tokens.

A spam attack on the PoS is also feasible. In July 2018, NEO was attacked, and all 20 free transactions in each block were clogged with spam, forcing users to wait or pay for transactions with GAS tokens. This year, on January 16, a critical vulnerability was found that allowed you to completely block all transactions in the EOS almost for free. Any EOS user can queue future transactions, and for some reason, they take precedence over current ones. As a result, having only one EOS token, one can send 700 spam transactions at once, and have 100 tokens - 70 thousand spam transactions. Sufficient tokens and the EOS are paralyzed. Because transactions are free, tokens are blocked for one day, and are usable again after a day, the attacker does not lose anything. There is no patch yet, so we have yet to see how the EOS handles this.

Smart contracts attacks

Attacks on smart contracts are prominent. A smart contract is a program that runs on a blockchain. It can be written in any language that the blockchain virtual machine understands (EOS has more than five programming languages, ETH has only one - Solidity, Lisk - JavaScript). The problem is that the vulnerability of a contract does not depend on the blockchain on which it runs but only on the qualifications of its developers.

For example, we can recall TheDAO, whose hacker was able to find a vulnerability in a smart contract and loop a withdrawal request. Thus, he pulled a third of all Ethers from the general fund, for $ 50 million. The developer simply forgot to include a recursion check in one of the chunks in the code; it ended up costing the entire network significantly.

Making blockchain safer: best security practices for blockchain

Implementing bug bounty programs

Bug bounty programs incentivize ethical hackers to identify and report vulnerabilities in blockchain systems, thereby fostering a proactive approach to security. Platforms such as CryptoExchange.com offer insights into the world of bounty hunting and encourage collaboration to strengthen blockchain security.

Educating the community

Educating users, developers, and stakeholders about security best practices and emerging threats is essential for building a vigilant and informed community. By promoting awareness and knowledge sharing, blockchain ecosystems can collectively combat vulnerabilities and effectively mitigate risks.

Using privacy enhancement technologies

Today, there are more and more methods to increase privacy and at the same time maintain the attractiveness of the blockchain for business. One of these methods is the Panther Protocol. This is an end-to-end privacy protocol that connects the blockchains. It allows you to restore privacy in Web 3 and DeFi. The protocol uses selective disclosure of private information and zero-disclosure evidence.

Other methods to enhance security include differential confidentiality, self-contained identification protocols, and the use of synthetic data for modeling.

Conducting audits by third parties

A thorough audit is an effective way to identify vulnerabilities in blockchain and smart contracts. Competent organizations with a high level of trust from customers should conduct such an audit. H-X Technologies conducts security compliance audits, audits of smart contracts, and source code.

Tips on using blockchain products safely

To make your use of cryptocurrencies safer, you need to know and learn how to avoid blockchain security threats and protect yourself from them. The following are some tips to help you with this.

  • Regular security checks and analysis: Regularly audit blockchain and smart contracts using automated tools and expert assessments to ensure code security.
  • Implementation of reliable access controls: Use strict access control with multifactor authentication and hardware security modules to manage the authorization of changes in the blockchain network.
  • Update security patches: It is very important to keep the blockchain platform and all related software up-to-date with the latest security patches. Regular updates protect against newly discovered vulnerabilities and enhance the overall security of a system.

The current state of blockchain regarding security and future trends

The current state of blockchain security reflects a dynamic landscape in which technological advancements are met by evolving threats. Although significant progress has been made in enhancing security measures, continuous vigilance and innovation are essential to stay ahead of malicious actors seeking to exploit vulnerabilities in blockchain networks.

The future of blockchain security holds promising developments, such as enhanced privacy features, quantum-resistant cryptography, and decentralized identity solutions. As blockchain technology matures, integrating these advancements will be pivotal for fortifying the security posture of blockchain networks and ensuring their long-term viability.

Conclusion

Blockchain has many advantages for businesses, owing to its distribution and decentralization. However, these principles leave many vulnerabilities that are often exploited by attackers. By embracing best security practices, leveraging bug bounty programs, and prioritizing community education, seasoned users and newcomers can contribute to a more secure and resilient blockchain ecosystem. 

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