Cryptocurrency has no doubt taken us to greater heights by introducing blockchain solutions that can address real-world problems. While it’s true that security can be a concern when it comes to blockchain technology, the good news is that there are steps we can take to protect ourselves. By learning about the security measures that are available and taking precautions to safeguard our assets, we can enjoy the many benefits that come with using cryptocurrency.
Security is a concern in blockchain technology because it relies on a decentralized and distributed network of computers to maintain the integrity of the system. While this decentralized approach offers several advantages, such as transparency, immutability, and resilience to attacks, it also creates new security challenges such as attacks on individual nodes within the network.
Is blockchain security really secure? How can I protect my assets? Especially if you’re new to crypto, these questions may have at one point crossed your mind. Here, we’re going to explore blockchain technology, its strengths and its vulnerabilities, and how to stay secure when using crypto.
Table of Contents
- Cyberattacks and Fraud
- Code Exploitation
- Stolen Private Keys
- Hacking
- Ponzi Schemes
- Discord Scams
- Blockchain Exploitation
- Routing Attacks
- Sybil Attacks
- 51% Attack
- Dusting
- Pump-and-Dump Schemes
- Final Thoughts
Cyberattacks and Fraud
While blockchain technologies produce an inviolable ledger of transactions, some vulnerabilities can be exploited in a cyberattack or in the event of fraud. Cyberattacks refer to malicious acts aiming to compromise or disrupt a device or network, while fraud, on the other hand, is a deliberate attempt to deceive to gain an unfair advantage or benefit in context with cybersecurity.
Code Exploitation
Code exploitation refers to exploiting the vulnerabilities of smart contracts deployed in different blockchains. Smart contracts are a pivotal part of blockchain technology that carry out a set of instructions in a self-executing code on top of a blockchain. Even if smart contracts are complex, multi-layered systems, design and implementation errors exist in different stages of their deployment. Decentralized finance (DeFi) is the most vulnerable innovation from smart contracts as hackers can easily take advantage of this as a hacking point.
The re-entrancy exploit (Source: Graphicaldot)
Stolen Private Keys
Stolen private keys are another vulnerability of blockchain technology. Typically compromised by a person’s negligence in handling their wallet, private keys are the “passwords” that give access to crypto wallets. Aside from negligence, private keys can also be compromised by hacking from hot wallets, theft by corrupt crypto custodians, phishing and viruses, or theft from cold storage.
Security exploit on the Lykke platform using its API keys (Source: CyberNews)
Hacking
A computer getting hacked can result in the full exploitation of assets within the device. Companies risk the exploitation of their assets when an employee’s device becomes a point of access for a security breach. This shows the importance of studying cryptocurrency security measures that will empower both casual users and employees against elements aiming to exploit assets. These attacks can take many forms, which include the following:
- A ransomware attack is an attack where software blocks access to the critical functions of a device or system and demands a ransom for its recovery.
The WannaCrypto ransomware attack (Source: PBS)
- Malware attacks are attacks that use software to discreetly compromise a device containing sensitive information that can potentially endanger the assets of an organization or user.
A malware attack utilizing a fake browser update for Google Chrome (Source: Bleeping Computer)
Ponzi Schemes
Ponzi schemes involve tricking people into a suspicious investment project that relies on a continuous stream of victims to sustain itself. Usually, victims are lured with easy profits for their investment that will eventually become unsustainable.
The investment paradigm of Bank of Tron, a popular Ponzi scheme on the Tron blockchain
Discord Scams
Discord scams are a new type of fraud involving multiple NFT projects that use Discord as a medium of communication. Exploiters target weaknesses in infrastructure instead of the actual NFTs and tokens. Webhooks, a mechanism that allows applications to communicate with each other in real time by sending data when an event trigger occurs, are typically used to automate messages. Exploiters may use them to send fake announcements that direct victims to a scam address.
A scammer impersonating Uniswap in a direct message on Discord (Source: Kaspersky Blog)
Blockchain Exploitation
Blockchain exploitation refers to the intentional use of weaknesses in the technology for malicious purposes. This can lead to security breaches and compromise the integrity of the blockchain system. It is important to be aware of these potential risks and take steps to safeguard assets and information on the blockchain.
Routing Attacks
Routing attacks pertain to hackers intercepting the data sent from a source toward the servers of internet service providers. To make matters worse, blockchain participants can’t see the threat because, in reality, the exploiters already possess the confidential data needed to perform a heist.
Diagram of a routing attack
Sybil Attacks
Sybil attacks are named after the subject of Flora Rheta Schreiber’s nonfiction book, “Sybil,” which documents the treatment of a woman with dissociative identity disorder. In a Sybil attack, exploiters create and use false network identities to flood and crash the network. It is comparable to a distributed denial-of-service (DDoS) attack but within the limitations of blockchain.
Diagram of a Sybil attack
51% Attack
A 51% attack is a complicated attack aiming to control an entire blockchain. Proof-of-work blockchains with an insufficient number of miners are the most vulnerable structure for this kind of attack. This happens when malicious miners attain more than 50% of the blockchain’s mining power, thus giving them complete control over the blockchain ledger to freely manipulate transactions. This will result in the complete compromise of all the users’ assets within the blockchain.
The exploiter can “double spend” within the blockchain. This pertains to the act of duplicating transactions within a blockchain. Double spending will damage the trustless and immutable nature of blockchains.
Diagram of how a 51% attack works
Dusting
Dusting is a type of attack in which a tiny amount of crypto is sent to different crypto wallets to dox the wallet owners or lure them into a phishing site using the messaging function of some EVM-compliant blockchains.
A dusting attack (Source: Binance Academy Blog)
Pump-and-Dump Schemes
Pump-and-dump schemes pertain to a group of people prompting large groups of people to buy a specific token (pump) only to sell it after (dump) because of the sheer volume. The perpetrators usually shill or incite FOMO about tokens with small market caps to drive people into the token using the artificial surge of the price.
A token that has been pumped and dumped (Source: Atomic Wallet)
Final Thoughts
Understanding the concepts discussed in this article is essential when engaging in blockchain technology, but while this article covers many topics surrounding crypto security, anyone who wishes to participate in crypto is encouraged to do their own due diligence. There’s a reason why “DYOR,” or “Do your own research,” is a commonly heard mantra in crypto. Being equipped with your own personal knowledge empowers you to have a safe and enjoyable experience while exploring the space.