Blockchain is a way to record and store digital information so that it cannot be faked, deleted, or changed without drawing attention. The blockchain consists of a chain of blocks containing information, with each subsequent block linked to the previous one. If you replace or remove at least one of them, the entire chain will collapse. Blockchain is an eternal digital distributed ledger of economic transactions that can be programmed to record financial transactions as a cryptocurrency and practically everything that has value (property rights, cars, notarial deeds, contracts, etc.).
Blockchain is an open and censorship-resistant database model protected by encryption and decentralization. Blockchain writes information in blocks to a shared ledger, keeping a synchronized copy of it in all systems participating in the network, thereby ensuring its immutability. Despite this exist some risks and threats to avoid.
Some of the blockchain threats and risks
Any new technologies always bring benefits to civilizations and contain unknown risks, including risks related to information security.
According to a study by Trend Micro, exploiting human weaknesses has become the main focus of modern cyberattacks. The popularity of phishing among cybercriminals is due to its high efficiency and relatively low cost. The main task when creating a fraudulent letter or website is to convince the potential victim of the legitimacy of what is happening because only in this case will she readily do what the attacker wants.
There are several ways to verify the authenticity of a letter. For example, the Binance cryptocurrency exchange offers its users to add a unique anti-phishing code to letters from the business as a solution. A fair question arises: why does a crypto exchange not use blockchain-based keys to provide security, preferring a primitive secret code that is relatively easy to fake? There is, in particular, a wide range of blockchain-based security solutions that use a distributed ledger to distinguish phishing URLs from safe ones.
Thus, we can conclude that, despite the availability of blockchain-based anti-phishing solutions, they have not yet received wide distribution due to the lack of apparent advantages.
Attack 51% and Double-spending
The essence of attacks is that an attacker, controlling more than fifty percent of the confirming resources of the blockchain network, can print his chain of blocks, which overtakes the main chain of the blockchain and, as a result, becomes the main one. At the same time, he quickly and unimpededly canceled part of the transactions made in their rejected blocks. For example, money transfer transactions. Thus, it is theoretically possible to reverse the transaction retroactively.
At the core, mining is similar to sifting through lottery tickets, with a varying probability of winning. So for a successful attack, you can even have less than 51 percent power. The likelihood of success, in this case, will fall, but the criminal may hope that he will succeed.
Similar conditions allow the attacker to carry out another attack known as «Double-spending»: to spend more money than he has. For this, he creates several transactions using the same coins. In theory, the network considers extra transactions incorrect and rejects them: miners do not include them in a block.
However, if an attacker can place a block, he can include double-spending information in it himself. In this case, honest miners fork the blockchain and start building a valid parallel branch, ignoring the attacker’s block. If the latter has 51% of computing power at his disposal, he can influence consensus and build his chain with “incorrect” transactions, which will be considered “true.”
DDoS — another type of hacker attack, the idea of sending a large number of similar requests. Bitcoin has built-in protection against denial-of-service attacks. For example, the block size is limited to 1 MB to complicate the clogging of memory pools of full nodes, and the size of each script does not exceed 10 thousand bytes. A limited number of signature checks also require a block (20 thousand) and several multi-signatures (20 keys maximum).
At the same time, Bitcoin clients block all suspicious nodes and transactions. For example, in the client’s last version, Bitcoin Satoshi added a function to register non-standard transactions (more than 100 kilobytes). Also, when processing transactions, the client checks that all exits are “not spent.”
It is believed that quantum computers will surpass classical systems in terms of power in the future. But, as John Martinis, an expert on quantum computing at Google, says, humanity will need another ten years to create such a computer. However, this fact still causes concern in the crypto community.
The productivity of quantum systems in a specific range of tasks is higher than that of classical computers. For example, a D-Wave system using the quantum annealing method is 100 million times faster than conventional computers.
One of the tasks that must be considered in this regard is the problem of factorization. Quantum algorithms, for example, Shor’s algorithm, in theory, will be able to break RSA encryption and, as a consequence, digital signatures used in Bitcoin networks.
Therefore, the development of solutions is already underway today, the purpose of which is to help crypto projects withstand the pressure of quantum machines.
The attack got its name in honor of the clinical case describing a woman with a dissociative personality disorder. By analogy with this case, a Sibyl attack implies a situation where one node in a network acquires several entities.
A hacker can try to fill the network with nodes controlled by him, and other users will be able to connect only to blocks created for fraud. For example, the attacker blocks transactions from other users by disconnecting you from the public network. After that, the attacker connects you only to the blocks he creates in a separate network. As a result, transactions will appear that will send money again (double-spending).
System time lag
This attack scenario is such that hackers attack a network with subscribers to a blockchain product, such as Bitcoin. By creating a significant computational load on the system, they slow down time within the network, complicating the transmission of data, and messages between end users, updating information in networks, forming blocks, chain, and their fixation by transaction participants.
Even though transactions in Bitcoin are signed, this signature does not cover all the information that is hashed to obtain the transaction hash. It is possible to change transaction parameters so that the hash changes, but the signature remains the same.
Based on this, an attack can be organized when withdrawing funds with third-party services. In the initial transaction, the identifier is replaced, and the money reaches the addressee, but he informs the service’s technical support that the initial transaction did not arrive. As a result, the service can resend funds.
There is another variant of this attack called «flexibility of transactions.» The essence of attacks is that the attacker changes the unique identifier of bitcoin transactions to its confirmation in Bitcoin networks. In such a change and compliance with the necessary conditions, the user can see that a transaction has not been completed.
Bugs can lead to instabilities in security systems. For example, in a node, information must be updated for a short period. If this did not happen due to a bug, the necessary information did not appear in the chain; incorrect data began to spread over networks, etc. All this can cause the network to stop working for several hours.
Key Blockchain Security Factors
Blockchains are built so that their security provides various desirable features that help protect transaction data. Here are some of the blockchain features that help it achieve a high level of protection:
Decentralization — the degree of distribution of decision-making, influence, and control over a network of computers — is a critical player in blockchain security technology. Due to the decentralized nature of blockchains, there is no need for any centralized or traditional infrastructure management, making fraudulent activities difficult. Everyone has access to blockchain information, and all users have access to the blockchain registry. Both private individuals and corporate businesses use blockchain to track transaction records.
All transactions in the blockchain registry are immutable, cryptographically signed, and time-stamped. After a transaction has been verified, the object becomes impossible to manipulate data in networks, which gives the blockchain a high degree of data integrity and increases the trust and reliability of the technology.
The main problem of immutability is that it does not allow human error. Any transaction made to an incorrect address becomes irreversible. Cryptography uses both a public key and a private key. The public key is a wallet address accessible to everyone, while the private key is stored securely and should never be lost. All information sent to the public key is encrypted and can only be decrypted with the private key. In addition, you cannot detect or recognize the user’s private key from the open key, which increases the security of the blockchain.
Digital signatures are based on cryptography and are very important to the blockchain. They cannot be faked and are encrypted using the user’s private key. For example, whenever a transaction is initiated, it is hashed using hash functions and encrypted using the sender’s private key. Consequently, it creates a digital signature. The critical feature helps prevent fraud when managing records on the blockchain.
The consensus algorithm
Blockchain uses a consensus mechanism to determine how the next block of transactions will be verified and added. Consensus algorithms are rules that participants must follow to guarantee the authenticity of network transactions. They also affect the amount of use.
The main types of consensus mechanisms are «Proof of Work (PoW)» and «Proof of Stake (PoS).»
- PoW — Proof of Work: Bitcoin, one of the major cryptocurrencies, uses the Proof-of-work consensus algorithm. Miners verify transactions and computational puzzles, and whichever miner solves the puzzle first adds a block of transactions to the Bitcoin blockchain. In addition, the first miner will receive an amount of digital currency embedded in the blockchain protocol. One of the advantages of using the proof-of-work algorithm is that it is difficult to crack, except that an attacker in the network will receive 51% of the total mining capacity. The greater the number of miners competing in networks, the greater the full mining power and thus the security of the blockchain.
- PoS — Proof of Stake: Using the Proof-of-Stake algorithm mechanism, instead of each miner using energy to solve a block problem, cryptocurrencies like Solana and Cardano use algorithms to verify transactions and create a validator chosen by algorithms for the following block to receive stake rewards. The more your stake in cryptocurrencies, the more likely you are to confirm the next block. The primary purpose of the Proof-of-Stake consensus algorithm is to solve the problem of 51% attacks. The main disadvantage of using the PoS consensus is that the participant with the largest share of cryptocurrency gets more.
The Future: Interoperability – Key to a Cross-Chain World
Since blockchain technology is developing in many new sectors (such as GameFi, NFT, DeFi, etc.), solutions for functional interactions (for example, bridges between chains) are quickly becoming the subject of the blockchain landscape. Many new projects are working on creating reliable, interoperable solutions for optimal communication between disparate blockchain networks. For example, users will be able to exchange an asset on one chain for another purchase on a separate chain and take assets on one chain by placing tokens or NFTs as collateral on another chain.
Smart Contracts Security Issues
Smart contracts are agreements between two or more parties written as computer code on a blockchain, making them immutable and tamper-proof for all parties. Smart contracts are automatically implemented by the blockchain when predetermined conditions are met, making trustless agreements possible without intermediaries.
Intelligent contract algorithms make blockchain-based services accessible to companies that do not have the funds to invest in years of research and development for their blockchain network. DeFi platforms such as Ethereum, Solana, and Avalanche allow companies to create intelligent contracts directly on their blockchain and benefit from their immutability. Smart contracts are versatile tools with many applications.
Although highly secure, intelligent contracts face some problems in this sphere. We conditionally divide these problems into the following types:
- Problems in the smart contract code – They can be problems in the code logic, bad architecture, and low code quality. Problems in the code directly lead to attacks and loss of funds. The good news is that issues in the code can be identified during the audit process and fixed. Understanding where they come from is essential to avoid them in the future.
- Problems in the development process – Problems in the code are primarily due to an incorrectly built development process. The youth of the intelligent contract field, the disproportionate amount of money, and the hype mean that people neglect standard procedures for one reason, which often leads to severe problems. Most Ethereum smart contracts are written without a technical specification. Concise terms are allocated for development. Many people come to the area, including those with no programming background, which leads to a low level of developers of smart contracts. Even with experience, developers are often not deeply immersed in the topic and do not understand the specifics of smart contracts. People who write smart contracts are few, which forms high development costs.
- Problems with the Solidity language – Initially, it was created so a large number of people could quickly master it than to make it convenient to write secure smart contracts. This is a prerequisite for security issues.
- Problems in the concept – Many people do not understand well enough why smart contracts are needed, what they can, what they cannot, and how they work. This leads to poorly written innovative agreements or no warranties – it allows unilateral changes; one party can already change a contract after its signature.
Blockchain technology was created, in part, to allow people who do not trust each other to share valuable data safely and securely. This is because the blockchain stores data using complex mathematical and innovative software rules that are extremely difficult to overcome through a hacker attack for subsequent manipulation.
But blockchain security — even the most advanced systems — can fail in places where fancy math and programming rules come into contact with people who are skilled cheaters. On the other hand, blockchain developers are developing new protection technologies.