Blockchain and cryptocurrency are two of the main talking points in the tech world today, and their popularity doesn’t seem to be slowing down anytime soon. Although you may be familiar with and have invested in blockchain cryptocurrencies such as Bitcoin or Ethereum, you may be surprised by the severity of potential security threats to blockchain networks.
If you have invested in a blockchain cryptocurrency or plan to engage with blockchain networks in any form, you need to know about blockchain network security pitfalls.
However, we in no way aim to give you advice on investing in blockchain cryptocurrencies; just to bring awareness to the often overlooked security issues faced by blockchain networks.
Are blockchain networks vulnerable to security threats?
Blockchain networks operate on the core principles of decentralization, anonymity and cryptography. What this essentially means is that there is not a single controlling entity that manages the database, but different nodes in the network that use consensus protocols to perform transactions on the network securely.
Like any technology, blockchain has its shortcomings despite having a transparent, immutable digital ledger. There are several different types of security threats that blockchain networks are vulnerable to. This can include cyber attacks that directly cause financial damage to the blockchain or defraud the blockchain users.
What are the security risks of Blockchain networks?
Each blockchain network (Bitcoin, Ethereum, Ripple, Cardano, etc.) is vulnerable to different security threats depending on how they are configured to operate. The threats listed below may apply to several different cryptocurrency networks.
1. 51% attack
Perhaps one of the most important characteristics of blockchain networks is that it is immutable – a record, once created, can never be changed or deleted (at least in theory). Blockchain networks are decentralized and depend on the consent of the majority of miners. Any transaction that receives 51% of the vote is approved and added to the blockchain. 51% of votes equals 51% of the computational mining power in a blockchain network.
In an ideal world, we wouldn’t have to worry about a malicious hacker group controlling 51% of the blockchain. But what if that were to happen, and they aimed to wreak economic havoc on the blockchain network?
In such a situation, the malicious hackers who now control at least 51% of the mining power can perform fraudulent transactions, reverse existing transactions, double spend and reject any valid non-malicious transaction. As you can imagine, this will undoubtedly leave the blockchain vulnerable to financial damage.
Fortunately, the financial cost of acquiring the massive mining power required to pull off a 51% attack on a major blockchain network like Bitcoin or Ethereum is upwards of $10 billion, making it highly unlikely to happen. However, smaller and relatively new blockchain networks with limited miners are particularly vulnerable to 51% of attacks.
On Proof-of-Stake networks like Ethereum (ETH) and Cardano (ADA), 51% attacks are even more difficult because the malicious group would need to control 51% of the coin and not just consider 51% of the mining hash.
To carry out a successful 51% attack on a blockchain network, a malicious group must first control 51% of the mining power, after which they must ensure that they are able to deploy their intended altered blockchain at just the right time. Additionally, while controversial, the “honest” miners can vote to restore the blockchain to its original state after an attack has ended.
2. Routing attack
Unlike a 51% attack, routing attacks rely on exploiting fundamental vulnerabilities in the Internet routing infrastructure. An attacker can use a routine attack to split a blockchain network into two separate networks. The attacker acts as the bridge between both partitions so that all network traffic is routed through him. This creates powerful parallel blockchains, and when the attack is eventually stopped, all the blocks in the smaller partition will be discarded, causing transactions to be dumped and any mining rewards to be denied.
Likewise, routine attacks can also be used to delay the delivery of the mined block by at least 20 minutes while remaining completely undetected on the Bitcoin network. This can result in double consumption or waste of mining power.
Routing attacks are theoretically possible by intercepting network traffic, hijacking the Border Gateway Protocol, or even intercepting network traffic received via autonomous systems. Bitcoin in particular is susceptible to partition and delay attacks caused by routine attacks.
3. Sybil attack
A Sybil attack can be considered a type of 51% attack. These attacks typically involve the attacker creating fake dummy nodes on the blockchain network that attackers can use to gain a 51% majority and execute malicious transactions on the blockchain.
Blockchains tend to use consensus protocols such as Proof of Stake (PoS) and Proof of Work (PoW) to reduce the likelihood of Sybil attacks. While these protocols do not completely stop Sybil attacks, they make them very difficult because it requires a lot of money to acquire the hardware to perform a large-scale Sybil attack on a PoW or PoS network.
4. Blockchain User Endpoint Vulnerabilities
Like all other online transaction services, blockchain networks are subject to security overlaps in user interface devices such as computers, tablets and smartphones. An attacker who wants to access your blockchain wallet can continuously monitor your online activity or use malware to scan your files to find your wallet’s private key.
It is important to ensure that you keep your cryptowallet’s private key encrypted and do not store it as a plain text file. In addition, it is always recommended that you have installed secure anti-virus software that provides spyware protection.
Be careful in the crypto world
It’s easy to get excited by the idea of making a lot of money via crypto investments in Bitcoin or Ethereum, but first you need to make sure you’re aware of potential blockchain security threats and how they could affect your potential investments. You should always remember to invest safely, never share your private keys with anyone over the internet, and avoid interacting with individuals who offer free crypto coins.
