Blockchain Security

Blockchain has become a buzzword in the tech world since the advent of Bitcoin. In layman’s terms, a blockchain is a decentralized digital ledger connecting data blocks chronologically through a long cryptographic chain. The content of a block is a transaction or its bundle, which, when included in the blockchain, is confirmed and accepted by consensus.

The main properties of a blockchain are immutable transaction records, a decentralized network, and advanced encryption mechanisms for data security. Because of its decentralized and transparent transactions, blockchain has applications in many areas of business, including finance, healthcare, supply chain management, and voting systems.

Even after being so robust, it is not foolproof against cybercrime and fraud. Surprising, isn’t it?

What is Blockchain Security?

Blockchain security encompasses any and all steps taken to defend blockchain networks. It includes securing data from threats and ensuring the CIA triad (confidentiality, integrity, availability) of information stored within blocks.

Core features of Blockchain security

1. Decentralization: Since blockchain is inherently distributed, single points of failure are avoided, and it is difficult for hackers to attack the entire network.

2. Cryptographic Techniques:

● Cryptographic algorithms like AES or RSA encrypt data before it is appended to the blockchain.

● Every transaction is verified using a digital signature, which ensures that it has not been tampered with and originates from the asserted sender.

● Cryptographic hash functions like SHA-256 produce unique hashes for the data. All blocks store the previous block’s hash, so it is easy to detect any change.

3. Immutability: Once a block is added to the blockchain, the data in it is not possible to modify/delete without the approval of the network. This ensures that data is reliable and builds trust between users.

4. Distributed ledger: Blockchain is like a distributed ledger where all the details about a transaction, including the parties involved, are available. However, the availability depends on whether it is a private blockchain or a public blockchain.

5. Consensus Mechanisms: It is an approach where protocols are employed so that every node will agree on a state of the blockchain, which does not rely on blind trust. Two of the well-known algorithms are:

● Proof of work: This process involves nodes or miners solving a mathematical problem in order to gain permission to process a transaction.

● Proof of stake: In this algorithm, validators are chosen to create new blocks or confirm transactions based on the number of coins they have and are ready to “stake” as collateral.

Common Blockchain Security Risks and Threats

1. 51% Attack

If a single person or a group gets control of more than 50% of a blockchain network’s mining power, it can launch a 51% attack. They use this majority control to manipulate the blockchain in several harmful ways.

2. Smart Contract Vulnerabilities

Smart contracts are code written to automate terms of agreement. However, they can induce vulnerabilities due to bugs in the code or poorly implemented access controls.

3. Sybil attacks

A Sybil attack occurs when one entity creates multiple fake identities to gain a large influence on the network, which ultimately helps the attacker to manipulate the network’s consensus.

4. Eclipse attacks

As the name suggests, the attacker “eclipses” a single node from the rest of the network. The attacker isolates a node from the rest and controls its connections.

Case Studies

A) The DAO hack

The DAO (Decentralized Autonomous Organization) was launched in 2016 on the Ethereum blockchain. An attacker found a vulnerability in its smart contract code, particularly in the withdrawing function. The attacker exploited it and withdrew 3.6 million ETH, worth $70 million back then. This led to a hard fork in the Ethereum blockchain, creating a blockchain called Ethereum Classic (ETC), which had the older version. Investors’ stolen funds were restored to Ethereum (ETH).

B) Bitfinex hack

In the Bitfinex hack, attackers exploited vulnerabilities in the security of the Bitfinex exchange and stole up to 120,000 BTC (bitcoin). The attackers managed to compromise many accounts and drain Bitcoin from those. They could do this because the exchange’s security measures regarding its wallet and protocols were not up to the mark.

These incidents show that even though blockchain itself is robust and secure, platforms built on it can be vulnerable. So, let’s explore ways to ensure blockchain security.

Some Ways to Secure Blockchain

For Enterprises

1. Smart contract codes should be audited and updated regularly by third-party experts. This helps ensure the security of blockchain and its compliance with the latest security standards.
2. A simple authentication has a risk of attackers gaining unauthorized access. So, implement multi-factor authentication (MFA).
3. All the software used must be updated, as updates have patches against new threats.
4. Employees should be trained frequently to help them identify potential threats and prevent social engineering attacks.

For Consumers

1. When using wallets, choose wisely. Select wallets of platforms that include security procedures like multi-factor authentication.
2. Keep your devices and software updated. It protects you against newly evolved threats.
3. Keep robust and different passwords for different blockchain accounts. Use password managers to store your complex passwords and reset them regularly.
4. Keep track of your transactions. This helps in the early detection of abnormal or unauthorized activities.
5. Always use a reliable antivirus on your device to prevent malware attacks.

Conclusion

Now that blockchain technology is being integrated into multiple industries, its security is also more important. New blockchain security techniques are coming up daily with emerging threats and regulatory changes. So, stay updated and aware of them to save yourself from attack.

Written by: Virti Mehta