Cryptocurrency and Blockchain Security: Challenges and Solutions

Reading Time: 6 MINUTE

Do anything online, and the topic of security immediately follows—and with good reason.

It is not surprising that the issue of security is more sensitive for cryptocurrency and blockchain in general. After all, it involves people’s finances and investment.

as technology continues to improveso is security.

What is Blockchain Security?

It is a comprehensive risk management system that protects the blockchain network against fraud and attacks. It is much more complex than regular web security because the blockchain industry itself, and the businesses within it, are more complex than traditional organizations.

Blockchain includes cryptography in its entire universe. This system depends on decentralization and consensus to function effectively and securely.

It works in blocks, hence its name. Each block contains important records of transactions and links to another in line. All transactions are transparent and, above all, remain encrypted once recorded.

In theory, it is almost impossible to break into the blockchain. It is safe, fast, and private, which opens the way to change in the ecommerce industry.

But just as blockchain is made possible by the ingenuity and ingenuity of people, so are cyberattacks and fraud.

Blockchain Security Challenges

Blockchain is expected to have value $19 billion by the end of 2024which is a big jump from the estimated $4.5 billion in 2020.

This growth can be attributed to business leaders pledging their support and funding to the ledger industry. The global honchos say they will guarantee at least $1 million in blockchain investment. While cryptocurrency dominates the financial sector, other niches have been captured.

According to Statista, financial businesses account for only 30% of the value of the blockchain market. The rest is spread across various sectors that benefit from the safety and privacy that the technology offers.

And because blockchain appeals to many sectors, it is more attractive to cybercriminals and malicious parties looking for vulnerabilities in such systems. No matter how advanced technology is, privacy and security are not perfect.

The following are the most common security attacks in the blockchain industry:

51% Attacks

Although not a security issue per se, a 51% attack occurs when the majority of blockchain miners decide to take control and change the crypto company itself. They may decide to prevent new transactions from entering or reverse ongoing transactions, which may result in double spending coins.

Cryptojacking

The term combines cryptocurrency and hijacking—this type of cyber attack refers to hijacking a person’s or company’s computer or device to mine cryptocurrency. Unlike a 51% attack, where motives can blur between control and profit, cryptojacking is almost always done solely for profit. In many cases, such an incident may go undetected, and the victims will only realize that the attack has occurred due to the loss of their crypto assets.

the Coincheck heist of 2018 can be classified as cryptojacking. The crypto industry is calling it one of the biggest blockchain attacks ever, as hackers stole $530 million from users of what many call 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 block of transactions, hence the term flash loan.

Because it is easily accessible, malicious actors take advantage by stealing funds or manipulating prices in a decentralized financial smart contract. The main attack is the temporary liquidity that debt brings.

Pulling the Rug

Also known as a pump-and-dump scheme, rug pulls in crypto are when a group hypes a certain token to attract investors. The price goes up, and then that group runs away with the investment at its peak. This is a creative stunt that involves a lot of planning as crypto criminals back up a future token and make it seem legitimate to many investors.

Phishing Attacks

While the blockchain seems extremely 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 do in traditional cyber attacks, criminals send phishing emails to potential victims. Those who respond or click on the attached link become a weak point for blockchain security issues.

DDoS Attacks

A distributed denial-of-service (DDoS) attack is another common security breach that can be used to threaten blockchain technology. Cryptocurrency is an attractive target for hackers because of the traffic it generates, especially for companies that exploit the most popular bitcoins and altcoins. This attack involves overloading a target with fake traffic so that the hacker has time to cripple the website or service.

Sybil Attacks

An attack occurs when a bad actor or malicious group creates multiple fake identities for nefarious purposes on the blockchain. There are several types of Sybil attacks, one of which is a direct hit where the malicious node interacts with honest nodes to manipulate to act according to the interests of the cyber criminal.

An indirect Sybil attack is when the malicious node interacts with many nodes related to the main honest or real node. Cyber ​​attacks occur through proxy nodes, making it difficult to track or detect the crime.

The Human Element: More Vulnerabilities

According to the 2022 SonicWall Cyber ​​​​Threat Report, 2021 saw a 19% increase in cryptojacking attacks worldwide, which amounted to 12 million attacks from about 97 million attempts.

Most blockchain security concerns arise unnecessarily because of the underlying technology. Some attacks may occur due to human weaknesses.

The most high-profile targets of cryptojacking are governments and the healthcare industry. But within these large organizations there are some employees who will click on a phishing link without hesitation. A simple incident can make the entire company vulnerable to attacks. And one attack can cost millions of dollars.

All employees should be informed of best practices to protect themselves from cyber attacks. And as a minimum safety protocol, every computer should have best antivirus software.

How to Avoid Blockchain Security Problems

Every problem, no matter how complex, has a solution. Here are the main ways to protect the blockchain from common crypto attacks:

Ensure All Layers of Blockchain Architecture Are Free of Loopholes

Blockchain architecture is composed of layers. In most cases, it is divided into the following:

  • infrastructure
  • Data
  • Network
  • Protocol
  • Applications

Each layer has its own purpose in the overall operation. Many companies prioritize certain layers over others when it comes to security.

For example, data and networks are the most vulnerable to cyber attacks, so they are the most protected by the blockchain architecture. Cybercriminals simply try phishing to get information, or miners decide to hit the protocol themselves and deploy a 51% attack.

Each layer has weaknesses, and all of them must be protected from weaknesses. Nothing is left for malicious parties to exploit.

Use Proof of Stake

Blockchain works on a consensus mechanism that can be proof-of-stake or proof-of-work. Both aim to keep the blockchain secure, but proof-of-work requires a lot of computational work done by miners. With proof-of-stake, decisions are made by users who control the majority of coins, which prevents 51% attacks.

In contrast, verifying transactions is more competitive with proof-of-work, leaving miners to find ways to stay ahead.

Use Secure Routing Protocols

Routing protocols are designed to detect, monitor, or counter routing attacks, including Sybil attacks. It is important to ensure that the routing protocols are secure. This can be done through legitimate certificates.

Vet Smart Contracts Carefully

One of the many advantages of blockchain is the use of smart contracts, which ensure quick and secure transactions. In order to prevent smart contracts from being used in cyber attacks, they need to be carefully scrutinized. Experts should check it for bugs before implementing it. This effectively eliminates or reduces the risk of flash loan attacks.

Create a Dynamic Blockchain Community

Part of blockchain’s success 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 a greater stake in 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 that each individual knows how to protect themselves. As they become aware of security vulnerabilities, they become more vigilant for themselves and others.

Conclusion

Many companies are incorporating blockchain into their operations or are planning to do so in the near future. But while the blockchain is relatively secure, its safety is not absolute. Malicious parties are always looking for ways to make money or gain control as they use 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 due to human error.

Pavendra negi
Pavendra

Pavendra is a project manager with over seven years of experience in the technology field. He is there to manage teams and create engaging content that helps software developers gain a deep understanding of various technical concepts. Always passionate about using technology that drives innovation, he is a tech geek at birth. Currently working with iWebServices, he is a go-to person for delivering on-time software projects and ensuring their success in the long run.

Leave a comment