Cryptocurrency and Blockchain Security and Vulnerabilities
An examination of the vulnerabilities in the blockchain and cryptocurrency industry that can pose a potential threat to blockchain security.
Blockchain Security Vulnerabilities
Blockchain technology is deemed as one of the top innovations of this century.
The World Economic Forum report predicts that 10% of global GDP will rest on blockchain technology by 2025. While the industry’s growth is unprecedented, there are ongoing blockchain securities and vulnerabilities issues to address.
The technology’s applications in various industries are currently in the development phase.
From business enterprises to banking and finance, the potential of cryptocurrency and blockchain is massive.
But, we also cannot ignore the fact that the industry is still at a nascent stage. Moreover, the applications developed on the blockchain, including cryptocurrencies, remain susceptible to security risks.
In this article, we examine vulnerabilities in the blockchain and cryptocurrency industry that need to be addressed in order for the industry to reach its maximum potential.
1. End-Point Vulnerabilities
The blockchain ledger enables principles of immutability in the data. In other words, blockchain facilitates a secure ledger so that data cannot be hacked or modified.
However, while the data remains secure inside the ledger, it remains vulnerable at the entry and exit points to and from the ledger. Also known as end-point vulnerabilities, it is the point where humans or API interact with a blockchain.
Additionally, blockchain requires data and feeds to further process the information. These end-points are still vulnerable to hacks, thefts, and manipulation. For instance, in the case of cryptocurrencies, the end-point vulnerabilities may be in the form of digital wallets or storing assets via a hot wallet on a cryptocurrency exchange.
In order to enable security of cryptocurrencies and blockchain systems, additional protocols should be implemented at the end-points, such as 2FA authentication or cold storage facilities to manage and store cryptocurrency funds.
Furthermore, security protocols need to be deployed at multiple levels including within the internal system of operations, managing interactions of users with applications, at network level, and across the transmission channels.
2. Security of Private and Public Keys
Traders’ access to cryptocurrency assets is through a combination of private and public keys. In case a bad actor acquires your private keys, you may lose access to your digital currencies.
While it is impossible for a hacker to retrieve these keys purely through guesswork, they may be able to do so through phishing attacks, fake wallets, accessing your keys through the cloud, or by installing a virus on the computer that stores your private keys.
Additionally, one of the cryptocurrency vulnerabilities is the loss of your private keys. According to research, nearly 4 million Bitcoins are lost due to the loss of private keys.
To protect your private and public keys:
Avoid storing your cryptocurrency funds on third-party wallets.
Install anti-virus software on the hardware system of the computer with your desktop wallet.
Use security protocols like 2FA to enable additional security measures.
Avoid sending your private keys through email. Do not access your private keys through any emails from unverified sources.
3. Untested Codes
As the blockchain industry matures, different decentralized applications will develop on prominent platforms like Ethereum. However, these codes remain largely untested.
The developed applications are used to manage, transact, and store different cryptocurrencies, but vulnerabilities in these codes can pose a threat to blockchain’s security.
Currently, according to CoinMarketCap, more than 25.000 tokens exist in the cryptocurrency industry.
These tokens are built with software programs incorporating different codes on different blockchain platforms. Hackers can access the vulnerabilities in smart contracts and blockchain codes and use the flaws to their advantage.
One of the infamous episodes of untested codes is the DAO attack. Due to a flaw in the DAO smart contract code, hackers were able to steal nearly $60 million in Ether.
4. Double Spend Attack
Also known as the “51% attack”, the double-spend attack is one of the vulnerabilities inherent in blockchain’s system. If malicious actors possess more than half of any blockchain network, they can manipulate the security of a blockchain. For instance, a 51% attack on Bitcoin enables hackers to control the transactions. They can even spend the same BTC token twice.
The double-spend attack enables a single entity to control the entire blockchain network. Thankfully, the Bitcoin blockchain has a number of users accessing it, and a 51% attack is almost impossible to carry. However, new blockchain networks or those without mass adoption are vulnerable to such a threat.
In May 2018, Bitcoin Gold suffered a 51% attack wherein attackers were able to steal $18 million worth of tokens.
5. Third-Party Risks
The blockchain and cryptocurrency ecosystem needs third-parties to function at their optimum capacity. Moreover, this infrastructure of services has considerably increased with the rising popularity of the industry as a whole.
Hence, service providers or vendors also play an important role in blockchain security and vulnerabilities.
Vendors may be in the form of oracles providing data feed to smart contracts, wallet service providers, blockchain integration systems, and payment processors.
However, because they constantly interact with cryptocurrencies and blockchain networks, they inevitably pose a risk to the security of blockchain and cryptocurrency funds.
It is vital to vet third-party service providers before granting access to the cryptocurrency or blockchain network. Moreover, the blockchain integration service providers will increase as the scope of the industry widens. It is necessary to vet the service providers in terms of code, technical details, reputation, and team.
6. Regulative Measures
In recent years, legal compliance within the ecosystem has become much more clear.
Governments have started to define legal compliance in accordance with ICO, digital assets, STO, cryptocurrency transactions, and even service providers like cryptocurrency exchanges.
Having said that, regulations remain unclear in many nations. A standardized process of regulation is necessary to mitigate risks and enable a legal structure to avoid scams. Moreover, a structure of legal regulations will ensure security within the cryptocurrency and blockchain systems. The regulations should be drawn so as not to stifle the innovation and scope of the industry.
The mass adoption and growing popularity of blockchain systems are pushing regulators towards drawing a legally compliant structure.
The Bottom Line
There has been tremendous growth in the blockchain and cryptocurrency industry over the past decade, and yet the sector is still in its infancy. For the technology to attract innovation and progress, it is imperative to build a resilient, secure system by eliminating the vulnerabilities within a blockchain ecosystem.
