Blockchain has completely transformed how we interact online. In this article, we discussed the most secure types of blockchain and the most common challenges against it.
Recap on blockchain definition
Blockchain is a digital, decentralised database that enables the secure storage and transmission of data, including records of completed transactions. Due to its unique features, it has gained widespread adoption across numerous industries, including finance and healthcare.
In a blockchain, data is stored in blocks that are linked together by special cryptographic keys, forming an unalterable chain of information. Each new block contains data about the previous one, providing a tamper-proof and secure platform for storing and transmitting information.
Blockchain technology was created in response to the vulnerabilities and issues associated with Web 2.0, the current version of the Internet. Centralised databases used in Web 2.0 are susceptible to hacks, leading to the loss of users’ data and the potential for fraud and manipulation.
Web 3.0, the next iteration of the internet, is being built on blockchain technology to address these issues. It aims to create a peer-to-peer network that is distributed across multiple devices, from personal computers to company servers. By storing information on a decentralised network, Web 3.0 will provide a more secure and transparent platform for the storage and transmission of data.
The use of blockchain technology is not limited to specific industries. Any service that requires a secure, distributed database with a high level of integrity can benefit from the advantages of blockchain. By establishing trust between participants, blockchain can offer a transparent, tamper-proof platform for storing and transmitting data.
Industries that stand to benefit from blockchain include banking and finance, where the technology can be used for secure and efficient transactions. Digital identity is another area where blockchain can significantly impact, providing a secure and transparent way to store and verify identities.
Other areas where blockchain technology can be applied include supply chain management, healthcare, real estate, and government services. With its decentralised and transparent nature, blockchain has the potential to revolutionise various industries and transform the way we store, share, and verify data.
Security in blockchain
Blockchain technology is known for its inherent security based on several key features.
Firstly, it uses a decentralised, distributed ledger system consisting of interconnected blocks that cannot be broken or altered. Each participant can download and verify the entire chain, ensuring that no unauthorised changes have been made.
In addition, blockchain technology is based on cryptography, which provides a secure means of storing and transmitting data. Hashing algorithms convert data into a digital fingerprint or hash, which can be used to verify the authenticity and integrity of the data without the need for a direct exchange of information. The hash can be published publicly, allowing anyone to verify that the data has not been altered.
Another key security feature of blockchain technology is its resistance to hacking and other forms of malicious activity. Because the ledger is distributed across multiple nodes, it is extremely difficult for attackers to compromise the network or alter its stored data.
However, it should be noted that not all blockchain implementations are created equal, and some may offer higher levels of security than others. Factors such as the consensus mechanism, encryption methods, and governance structure can all impact the overall security of a blockchain network.
Types of blockchains
1. Public blockchain
Public blockchains, being permissionless, allow anyone to participate in creating and validating new blocks of data. These blockchains are widely used for mining cryptocurrency, with Bitcoin and Ethereum being the most notable examples. The nodes on the network compete to solve complex cryptographic equations that verify and add transaction records to the blockchain. Successful completion of these equations results in the miner earning cryptocurrency tokens that can be used in various ways, such as on an NFT or crypto exchange.
The decentralised nature of the ledger technology on public blockchains is generally considered secure, but there are still potential risks from malicious actors. A 51% attack, for instance, is a scenario where an attacker gains control of most of the nodes on the network and can manipulate the data on the blockchain. Despite this, the benefits of public blockchains in terms of transparency and immutability continue to drive their adoption and use in various industries.
2. Private blockchains
Private blockchains represent a distributed ledger technology (DLT) category that operates within an accessed network managed by a single organisation (node). This particular node takes on the responsibility of storing, tracking, and managing digital data while controlling network access.
Private blockchains are known:
- for their superior efficiency, stemming from their smaller network size and the absence of competition for network resources.
- considered to be more secure than public blockchains since only approved members are granted access to the network and digital assets stored on it. To ensure network safety, members of a private blockchain follow rigorous cryptography and consensus mechanisms.
- generally considered to be less secure than consortium or hybrid blockchains, primarily due to their centralised nature. Should the governing body be compromised, the entire network is at risk of damage.
Several prominent examples of private blockchains include KitChain, MELLODDY Project, and MyClinic.com.
3. Consortium blockchains
Consortium blockchains, or federated blockchains, represent a subset of distributed ledger technology operating within an accessed network. While they share this characteristic with private blockchains, they differ because they have multiple selected participants (organisations) who jointly control the network. This contrast with private blockchains, where there is only one controlling node, creates a more decentralised network that results in higher levels of security.
Federated blockchains are especially useful in scenarios where multiple parties must reach a consensus regarding a shared data set. For example, consortium blockchains can be used in finance, supply chain management, or Internet of Things (IoT) scenarios, where various parties must agree on transactions, deliveries, or data-sharing.
4. Hybrid blockchains
Hybrid blockchains combine aspects of both public and private blockchains to create a flexible network that can be tailored to specific use cases.
In a hybrid blockchain, a private network is established, and the data is shared only among a select group of participants who have permission to access it. However, the network also has a public-facing component, typically a public blockchain, which performs certain functions, such as validating transactions or providing transparency and auditability.
The public blockchain acts as a bridge between the private network and the outside world, providing the benefits of a public blockchain, such as decentralised validation, while still maintaining the security and privacy of a private network. An example of a hybrid blockchain is the IBM Blockchain Platform, which allows enterprises to build and deploy blockchain applications using a combination of both public and private components.
Common blockchain challenges
It is essential to acknowledge that all blockchain networks can become the target of cyberattacks, both at the level of the blockchain code itself and at the level of the protocols that run on top of it. Notable examples of this include the Ethereum DAO hack, which ultimately resulted in the hard fork of the Ethereum network, and the recent Binance Smart Chain (BSC) hard fork.
Nevertheless, it is worth noting that in the event of a widespread attack, the blockchain community may be able to take swift and decisive measures to minimise the negative impact of such an attack.
Through collective efforts and by leveraging various security mechanisms, it may be possible to mitigate the consequences of such an event and ultimately ensure the continued stability and security of the network.
The most common blockchain attacks are below:
- 51% attacks
The immutability of blockchain, which is one of its most prominent features, can be compromised if a consensus of 51% of all nodes in the network is reached to alter the chain. In such an event, malicious actors could potentially collude and establish a majority exceeding the 51% threshold, enabling them to execute nefarious activities. Nevertheless, countermeasures exist to thwart such assaults and remediate any harm inflicted on the network. Private blockchains, unlike public ones, are immune to this type of attack.
- Sybil attacks
A Sybil attack refers to the attempt by a perpetrator to commandeer a blockchain network by leveraging multiple accounts, nodes, or computers. This tactic is akin to the 51% attack but differs in that a single individual assumes the guise of several distinct entities to undermine the network’s security.
- DDoS attacks
Distributed denial of service (DDoS) attacks involve a coordinated effort by multiple interconnected devices, or a botnet, to inundate a targeted website or network with spurious traffic. While executing DDoS attacks on a blockchain can be challenging, it is not impossible.
In a DDoS attack against a blockchain, malefactors aim to incapacitate the server by overloading its processing capabilities with multiple requests from online devices. The objective is to sever the connections between the blockchain’s network and its mining pools, cryptocurrency exchanges, wallets, and other entities.
- Eclipse attacks
An eclipse attack is an exploit involving the takeover of numerous IP addresses or the use of a distributed botnet by attackers. In this scheme, the attacker alters the addresses of the victim node and awaits the victim node’s restart. Following the restart, all outgoing connections from the target node are redirected to the IP addresses under the attacker’s control. The attacker may also employ a distributed denial of service (DDoS) attack to compel the victim to reconnect to the network.
- Race attacks
A race attack is a method hackers employ to attempt to double-spend funds by creating two transactions of identical amounts simultaneously. The attacker aims to replace the first transaction with a subsequent one that returns the funds to a wallet they control before the initial transaction is confirmed and written onto the blockchain.
- Finney attacks
A Finney attack is an exploit that entails a miner pre-mining a transaction into a block from one wallet to another. The attacker then employs the first wallet to initiate a second transaction and broadcasts the pre-mined block containing the first transaction. To execute this attack, a specific sequence of steps must be followed. It is only feasible if the transaction’s recipient accepts an unconfirmed transaction.
- Vector76 attacks
Hackers can deploy this combination of race and Finney attacks to execute an exploit. In this scheme, the attackers create two transactions simultaneously and disseminate them to disparate areas of the network. The first transaction, which is of substantial value, is directed to the attacker’s address, while the second transaction is of minor worth. The attackers receive credit for the sizable sum, while the second transaction supplants the first transaction and ultimately gains the network’s final acceptance.
- Phishing
Phishing is a prevalent type of fraudulent activity aimed at obtaining users’ login credentials, including the keys to their cryptocurrency wallets. This scheme often involves disseminating deceptive emails containing malicious links intended to compromise users’ credentials.
- Honeypot scams
A cryptocurrency honeypot scam is a type of fraudulent activity that involves the creation of counterfeit crypto wallets or tokens to deceive unsuspecting victims into sending, investing, or trading their cryptocurrency tokens. The scam perpetrator typically masquerades as a legitimate enterprise and entices their targets with promises of lucrative rewards or services. However, the true objective of the scam is to steal cryptocurrency from the victim.
- Scam tokens
A scam token is a type of cryptocurrency that is designed explicitly to deceive investors and steal their funds. Typically, these fraudulent tokens are established on an existing blockchain platform, such as Ethereum, Polygon, or Solana, as it is easier for cybercriminals to do so than to create an entirely new blockchain.
As new crypto tokens continue to emerge, it is essential to exercise caution and discernment.
Although some tokens are legitimate, many are outright scams that are operated by criminals. There are several methods for identifying scam tokens, such as researching the developers and checking the token’s price history.
Best practices for blockchain security
The following are some best practices to ensure security when dealing with blockchains:
- Keep your login credentials confidential, including the mnemonic phrase and private key. Losing these may result in the permanent loss of access to the account.
- Check if your protocol has undergone auditing to ascertain the contract owners’ concern for security.
- Before submitting transactions to the blockchain, verify their results.
- Use transaction endorsement, which mandates multiple parties to sign off on each transaction.
- Remain vigilant for phishing attempts by utilising link checker tools and verifying community reviews of unfamiliar websites.
- Utilise a secure Virtual Private Network (VPN).
- Utilise a secure crypto wallet such as MetaMask (web/mobile), TrustWallet (mobile), or Ledger (physical device).
- Do not employ tokens with an unclear origin, as they may result in a loss of control over your wallet.
- If something appears to be a honeypot, it most likely is. Do not trust it.
- Expect cyber threats at every turn.