Blockchain:

  • Blockchain is the new application model of computer technology such as distributed data storage, point-to-point transmission, encryption algorithms etc.
  • Blockchain is an important concept of bitcoin and essentially a decentralized database.
  • Blockchains are helpful, but this technology can be detrimental because of its own specific set of security issues.

Blockchain security risks – An Overview

Blockchains fall under two types: permissionless and permissioned chains. Permissionless blockchains allow any party without any vetting to participate in the network, while on the other hand, permissioned blockchains are formed by consortiums or an administrator who evaluate the participation of an entity on the blockchain framework.

Regardless of the type of blockchain, the business logic is encoded using smart contracts. Smart contracts are self-executing code on the blockchain framework that allows for straight-through processing, which means that no manual intervention is required to execute the transactions. They rely on data from outside entities referred to as oracles and can act on data associated with any public address or with another smart contract on the blockchain. While blockchain technology promises to drive efficiency or reduce costs, it has certain intrinsic risks. It is essential that firms understand these risks and the appropriate safeguards in order to reap the benefits of this technology.

These blockchain risks can be broadly classified into 3 categories –
Standard risks: Blockchain technologies expose institutions to risks that are similar to those associated with current business processes but introduce shades for which entities need to account.
Value transfer risks: Blockchain enables peer-to-peer transfer of value without the need for a central intermediary. The value transferred could be assets, identity, or information. This new business model exposes the interacting parties to new risks that were previously managed by central intermediaries.
Smart contract risks: Smart contracts can potentially encode complex business, financial, and legal arrangements on the blockchain, and could result in the risk associated with the one-to-one mapping of these arrangements from the physical to the digital framework.

Blockchain security risks:

To explore some of the vulnerabilities that have been exposed in blockchain, we first need to understand what constitutes blockchain technology – cryptographically linked data structures, peer-to-peer networking, and consensus protocols. These weaknesses have to be fixed if the technology has to survive the onslaught of people with malicious intent. Before moving forward, the table below shows a comparison of the strengths and weaknesses of some of the popular consensus protocols being employed by blockchain technology.

Peer-to-peer network vulnerabilities: An example of an attack on a P2P network is called the eclipse attack. Such an attack is orchestrated by someone who seeks to isolate a specific user on a decentralized network. Rather than hijacking the whole network, the malicious player tries to control individual nodes which are in turn connected to other nodes. The blockchain connections are designed in such a way for efficiency where a node is connected to a select group of nodes and so forth. For example, the blockchain network has 8 outgoing connections while ethereum has 14. The attacker can fool the network into accepting fake information by carrying out a double-spend attack, where an isolated node is duped into thinking that a transaction sent to them is valid although it has already been executed.

Hacking attacks:
Cyber attacks on software applications that use blockchain are one that has plagued the crypto-verse ever since its existence and the one which has done the most damage and continues to date. The biggest break-in that took place was in Mt. Gox – the largest bitcoin exchange at the time lost 7,40,000 billion.

Now let’s see the top 5 blockchain security issues of 2019-

51% attacks:

Transactions can be reversed and caused double – spends by gaining majority control of a blockchain’s hash rate via malicious entities. Some famous cryptocurrencies such as ZenCash, Verge, and EthereumClassic were victims of 51% of attacks in 2018. There was a loss of around $20 million in 2019 due to this blockchain security issue. In order to prevent this 51%attack, being vigilant of mining pools, using higher hashrate, and avoiding Proof-of-work consensus mechanism can be the measures to take.

Exchange Hacks:

The cryptocurrency exchanges are very popular among hackers as they have large crypto holdings without sufficient security protection. Many cryptocurrency exchange platforms obsolete the decentralized benefits of blockchain because they are centralized innately. There was a loss of $900million in 2019 due to this blockchain security issue.
In order to avert exchange hacks, it is safer to use or store funds via hardware or paper wallet as it can utilize minimal online touchpoints to protect money away from malicious online hackers. The decentralized exchange is a good tool to use in regular trading because it helps in trading directly from a cryptocurrency wallet.

Social Engineering:

Phishing is one of the most common forms of social engineering. It may be in many forms, but it is always to obtain your private keys, login information, or more directly, your cryptocurrency. Malicious actors imitate someone whom you trust in emails, messages, or social media accounts.

There was a loss of $3 million in 2091 due to this security issue. In order to block social engineering attacks, it is necessary to make sure you never send anyone your login credentials or private keys.

Software Flaws:

Any software which is using blockchain technology should go over code reviews, penetration testing, and smart contract audits in order to test the software and find out flaws. There was a loss of around $24 million in 1n2019 due to this issue. In order to halt the software flaws, it is necessary to check if it has been audited for any flaws or loopholes by a third party when you use any blockchain-based software.

Malware:

Cryptojacking causes performance issues, increases electricity usage, and opens the door for other hostile codes due to the unauthorized and
unnoticeable takeover of computers. There was a loss of multi-millions in2019 due to this.
In order to shut out malware attacks, being vigilant is very important. One should frequently check that if they have any mysterious programs running through the task manager and run the security checks to ensure that it has not been injected with malware if you operate a website.

Blockchain security risks preventive approaches

The typical organization loses 5% of its revenues to fraud each year, according to a study by the Association of Certified Fraud Examiners. Unfortunately, fraud in a business can go undetected for a long time and is often hard to discover. The following 3 features of blockchain can help make business networks less susceptible to fraud.

Three features of blockchain that help prevent fraud:

Blockchain is distributed: A blockchain is a type of distributed digital ledger containing transaction data that is shared across a peer-to-peer network and continually reconciled. There is no central administrator or centralized version, so there is no single point of failure. Instead, management and authorization are spread across the network, so there is no obvious place for someone to instigate a fraud scheme.
There are several methods fraudsters use to conceal their criminal activities, including altering or deleting information in a company’s accounting systems, changing electronic or paper documents, and creating fraudulent files. Using a shared digital ledger can help reduce fraud because it increases the visibility and transparency of the transactions made throughout a supply chain and between members of a business network. Participants can see the history and transfer of assets, so fraudulent transactions are easier to identify. Plus, to tamper with the transaction records on a blockchain, an individual or group of individuals in collusion would have to control a majority of the system.

Blockchain is immutable transactions recorded on blockchain are immutable because they cannot be deleted or changed. Before a block of transactions can be appended to the blockchain, network participants must agree the transaction is valid through a process called consensus. The block is then given a timestamp, secured through cryptography, and linked to the previous block in the chain. Though you can create a new transaction to change the state of an asset, it will simply be added to the chain, and the original record will still be accessible. So, by using blockchain you can see the provenance of an asset, including where it came from, where it’s been, and who’s had ownership of it.

Counterfeiting is a global problem that affects a wide range of industries such as luxury goods, clothing, food products, pharmaceuticals, and more. Proving or disproving the authenticity and quality of an asset can be a challenge because traditional supply chains are long, complex, and lack transparency. However, if a producer or manufacturer’s goods are placed on the blockchain, those goods will have provenance due to their immutable transaction history, and that will make it difficult to pass off fake products as real.

Blockchain can be permissioned

Businesses deal with a lot of confidential data; they can’t let just anyone have access to it. There must be some way to ensure outsiders can’t get into the network and insiders can’t corrupt the records. This is where permissions come into play. However, permission networks can be great for fraud prevention because they restrict who is allowed to participate and in what capacity. Members of permission network must be invited and validated before they can contribute. Controlling access and identity management are key in a permissioned network.
With Hyperledger Fabric, a blockchain implementation framework hosted by the Linux Foundation, participants are issued cryptographic membership cards to represent their identity. That membership card grants access to see the transactions that pertain to them. However, even credentialed users can’t add to the blockchain without consensus, and no one can tamper with records on the blockchain because they are encrypted. Without a way to hide their tracks, fraudsters have a much higher chance of getting caught.

Conclusion:

E Com Security Solution helps organizations build and use blockchain technology and the connected infrastructure securely. The service includes manually reviewing chain code and security controls and processes such as access controls; identifying a probable adversarial path to compromise and move laterally within a blockchain ledger network; and more.

E Com Security Solution cybersecurity team, who are blockchain and security experts, can test an organization’s entire blockchain environment or only the blockchain’s technical elements. Testing the entire environment includes reviewing web and mobile applications that interact with the blockchain technology, APIs, ingress and egress points in the blockchain, public key infrastructure (PKI), user certificates, configuration, and networks.