#HowTo: Secure On-Chain Data – Infosecurity Magazine

Due to their unique design, which makes them resistant to hacking and data manipulation, blockchains are often praised for their security. Despite this, blockchains can be abused in various ways, as no system is completely impenetrable.

The challenge of maximizing data security in a highly transparent setting is specific to public blockchains. Public blockchains are far from perfect, and there are several ways in which malicious parties can take advantage of them.

On top of blockchain networks like Ethereum, developers are using Web3 programming to create decentralized applications (dapps), DeFi platforms, and other Web3 initiatives. Blockchains, which hold a complete record of a network’s transaction history, are essentially digital public ledgers. In addition, this transparency gives Web3 developers access to “on-chain data.” This blog will explore the complexity of on-chain data in more detail and explain how you can secure it.

Basics of On-Chain Data

Comparing on-chain data with off-chain data is crucial to understanding on-chain data in its entirety. Here’s a quick primer. Blockchains as a structure are used to store data on a distributed ledger as attachment-only state machines. This means that although state changes are visible to everyone, they are also irreversible. On-chain data describes parts of the ledger that are publicly available. These parts include hashed public keys and transaction data (wallets). Since these networks are transparent, anyone can access this information and, if necessary, query data on the chain.

Whether you are developing an NFT marketplace or a Web3 wallet, having access to real-time on-chain data is beneficial. In fact, chain data is beneficial to all Web3 projects as people start using their Web3 wallets to identify themselves to others. These wallets are digital personas that share our preferences, world view, morals and trade or purchase history. This transparency is one of the appealing aspects of blockchains and the products they enable. But while users find this openness tempting to build a portable online profile, hackers also find it useful for exploitative purposes.

The challenge of maximizing data security in a highly transparent setting is specific to public blockchains. It is difficult to change a single record in blockchain data because a hacker must change the block containing that record and all records associated with it to avoid detection. This is due to the decentralized nature of blockchain data.

What is off-chain data?

Off-chain data refers to network elements that are not available to the general public, including secret transactions, oracle data, and more. Here, the same immutability and transparency of chain data that attract users presents particular security difficulties for Web3 applications. In Web2, corrupt database states can simply be rolled back and reconfigured from a clean state, but due to the immutability of blockchains, this is generally* not possible.

Defense mechanisms

One of the primary drawbacks of blockchain is data protection. Regardless of whether a blockchain is a consortium, private or public, there is no privileged user in the network. Participants in the blockchain network have access to all data on a blockchain. But a case can be made for sensitive data, such as medical records, to be accessible only to relevant people. In contrast, users not associated with this specific data are banned. On a public blockchain, new users can join the network at any time and have free access to all data stored there. So how do we actively ensure the privacy of data on the chain?

First, it starts with users protecting their own data on the chain. The new generation of crypto investors will do well to start curious, gain expertise and then do independent research into the industry. There are countless unique cryptocurrency projects and use cases and many excellent free learning materials online. Although scary, the secret to maintaining and keeping digital assets is to understand the entire process of using a ledger (hardware wallet).

The second step is data encryption. Personal information that needs to be kept private should not be placed on a blockchain, at least not in plain text form, since everything on a blockchain is available to everyone on the network. Data can be encrypted before being added to the blockchain as transactions to protect the privacy of the interested parties.

The third defense mechanism is built into blockchains themselves. The two most common are proof-of-stake and proof-of-work.

Proof-of-work was designed in part to make it difficult and expensive for attackers to replace the original version of the blockchain with their own version. But difficult does not mean impossible. An attack vector for this type of consensus mechanism is a “51% attack.” Here, an attacker can take control of the blockchain if they have 51% or more of the network’s hash rate. A decentralized system must accept the unpleasant but unavoidable reality of 51% abuse. If a system is based on majority vote, it is controlled by the attacker who receives the most votes. Any countermeasure to a 51% attack starts to centralize the system.

Making 51% of abuses prohibitively expensive and difficult to perform is the strongest defense against them. To do this, a Proof of Work network must accumulate sufficient hashrate so that it would be impossible for an attacker to buy most of the network’s processing power. This has the advantage of maintaining confidentiality because the publicly available data on the blockchain is encrypted, making it impossible for anyone without a secret key to decipher the data.

A proposed replacement for proof of work is proof of effort. Proof of Stake, like Proof of Work, aims to achieve consensus, by choosing one network participant to add the final batch of transactions to the blockchain in exchange for payment in cryptocurrency. The proof-of-stake system was created to solve problems of scalability, energy use and environmental impact.

In Proof of Stake, validators are selected according to the number of tokens they own based on the theory that since they are “staking” on the token’s value, they have a stake in maintaining the network’s reliability. Therefore, Proof of Stake transactions need significantly less energy and complete transactions much faster. Without the excessive energy costs associated with Proof of Work approaches, the continuous blockchain can be validated more quickly and efficiently.

Looking ahead, the future of crypto security

Blockchain security is quickly moving to the forefront of both consumers and industries. As a result, many businesses are trying to create a secure ecosystem for the cryptocurrency industry, and more options will soon be available when considering security solutions.

In the near future, more businesses will offer security solutions, such as smart contract audits, as a thorough procedure to examine the code of a smart contract that interacts with a cryptocurrency or blockchain. Platforms such as Ethereum, Solana, Algorand, and others use this approach to find bugs, issues, and security vulnerabilities in their code and fix them. It protects the code from potential errors in the future.

Yet, despite advances in blockchain security, we currently live in a difficult time with a high experimentation factor and few security options. Here, early adopters and ambitious companies that successfully navigate the pitfalls will continue to reap the benefits of this new technology. Meanwhile, every aspect of our lives will begin to be affected by blockchain technology, from finance to healthcare and beyond. This technology has had a major impact on the cyber security sector and will continue to evolve into the future.