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Blockchain and Security

Updated: Jun 22, 2021

Blockchain Security: Protecting the Blockchain Network from Attacks and Fraud

To make your blockchain network secure, you need to take care of cybersecurity frameworks, assurance services and best practices. With phishing scams that try to steal sensitive information like passwords and private keys lurking around the internet it's important for networks not only to protect themselves from their own vulnerabilities but also others'. This article will discuss the importance of blockchain security in protecting your network from threats like phishing scams that try to steal sensitive information like passwords and private keys.

First, we will look at blockchain security from a strategic perspective. What does it do to protect the network? Blockchain networks are inherently more secure than traditional centralized systems that store data in one place and typically use an SSL certificate for encryption. In contrast, blockchains spread encrypted information across many computers on their respective nodes in the Bitcoin blockchain or Ethereum blockchain, so there is no single point of failure where hackers can target to get into your system.

- The decentralized design also means that any changes made to one node must be agreed upon by all other nodes, making it much harder for bad actors to exploit vulnerabilities without permission

How security differs by blockchain types

Blockchain networks can differ in who can participate and who has access to the data. Networks are typically labeled as either public or private, which describes who is allowed to participate, and permissioned or permissionless, which describes how participants gain access to the network.

Public blockchain networks allow anyone to participate and don't require participants to identify themselves. Public blockchain networks have lower computing power requirements than private blockchain networks because they need less security, so the network is more scalable. They are generally better for non-financial uses like voting systems or data exchanges where transparency of transactions isn’t necessary.

Private blockchain networks do not allow just anyone to join; instead, a participant must be invited by one of the existing members who already has permissions in order to gain access on this type of network. Private blockchains usually come with stricter security measures, but there are also higher processing costs associated with them as well as their larger size due to all stored information requiring verification from every node within the network.

When building a blockchain application, it’s critical to assess which type of network will best suit your business goals. Private and permissioned networks can be tightly controlled and preferable for compliance and regulatory reasons. However, public and permissionless networks can achieve greater decentralization and distribution.

Cyberattacks and fraud

While blockchain technology produces a tamper-proof ledger of transactions, blockchain networks are not immune to cyberattacks and fraud. Those with ill intent can manipulate known vulnerabilities in blockchain infrastructure and have succeeded in various hacks and frauds over the years. Here are a few examples:

In 2017, hackers stole $530 million in NEM coins from Japanese cryptocurrency exchange Coincheck. The attackers used a vulnerability in the blockchain infrastructure to gain access and execute an unauthorized transaction of XEMs.

The DAO (Decentralized Autonomous Organization) was a decentralized autonomous organization that raised more than US$150 million worth of Ether tokens via crowdsale during 2016–2017 before being hacked for about half this amount on June 17th, 2016. A group of white-hat hackers discovered problems with how funds were transferred out by updating their own copy of the Ethereum blockchain ledger so as to undo all transactions made by the attacker(s).

How fraudsters attack blockchain technology

Phishing attacks

Phishing is a scamming attempt to attain a user's credentials.

-A phishing website is set up to resemble a legitimate site and tricks the user into entering their data on it. This will capture information such as passwords, credit card numbers, login names etc. that can be used later by the fraudsters in an attack against the bank or service provider.

Routing attacks

Blockchains rely on real-time, large data transfers. Hackers can intercept data as it's transferring to internet service providers. This gives them the opportunity to change information that will be transferred to other nodes in the blockchain.

Malware on a node

Nodes can become infected with malware, which then could spread by downloading and installing it onto other vulnerable computers within network range or even replace legitimate blocks of code for malicious ones.

Replay attacks

This type of attack takes advantage of long lag times between transactions being mined into different blockchains. It's possible for an attacker to record all transaction data and play back old transactions when no one else is around or online during off-peak hours. This may result in incorrectly crediting accounts, double payments etc., leading to financial losses as well as trust issues among users.

Sybil attacks

In a Sybil attack, hackers create and use many false network identities to flood the network and crash the system. This is done by creating multiple identities for the same system or network and submitting false transactions to overload its resources.

Blockchain security for the enterprise

When building an enterprise blockchain application, it’s important to consider security at all layers of the technology stack, and how to manage governance and permissions for the network.

-A blockchain security strategy should involve a comprehensive risk management system to reduce risks against attacks and fraud. Implementing cybersecurity frameworks, assurance services, and best practices will help protect the network from malicious hackers as well as fraudulent transactions.

-Users of blockchain networks are at great risk when no one else is around or online during off-peak hours. This may result in incorrectly crediting accounts, double payments etc., leading to financial losses as well as trust issues among users. One such attack is called Sybil where attackers create many false identities for themselves on a single network using multiple systems or networks and submit false transaction requests which overloads the resources of those systems.

Some of the security controls specific to enterprise blockchain solutions include:

  • Identity and access management

  • Key management

  • Data privacy

  • Secure communication

  • Smart contract security

  • Transaction endorsement

Blockchain security tips and best practices

When designing a blockchain solution, consider these key questions:

What are the key threats to address?

How can you best protect against them?

Are there any regulatory requirements for blockchain security measures or controls?

Establishing a well-informed cybersecurity strategy is an important step in achieving successful blockchain adoption.

The following tip and recommendation should be considered when designing your blockchain solution:

* Require Multi-Signature Keys (M of N) to approve transactions, where M refers to minimum number of required signatures for approving transaction and N is the total number of individuals with access rights. This will ensure that more than one person needs to sign off on every transaction before it gets processed, which reduces risks from attacks successfully injecting false information into the network.

Blockchain security is about understanding blockchain network risks and managing them. The plan to implement security to these controls makes up a blockchain security model. Create a blockchain security model to ensure that all measures are in place to adequately secure your blockchain solutions.

The following blockchain security best practices can help you create a model for securing your blockchain network:

- Minimize the potential attack surface.

- Ensure proper authentication and authorization to prevent unauthorized access of data, applications, or networks.

- Prevent fraud by reviewing all transactions before processing them with complex validation logic checks and strong encryption algorithms. This also limits exposure from any type of transaction losses due to fraud such as chargebacks on credit card purchases or fraudulent vendor payments

- Perform regular audits and penetration tests of their systems according to industry standard frameworks in order to identify vulnerabilities that may enable an attacker breach.

Our Blockchain services and consulting can help you design and activate a blockchain network that addresses governance, business value and technology needs while assuring privacy, trust and security.

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