Blockchain Security: Everything You Need to Know for Safe Use

A blockchain is a tamper-proof, distributed record of transactions. It uses cryptography to ensure that its records are not altered or destroyed, and it does not rely on a trusted central authority. Blockchains are mostly associated with cryptocurrency and financial transactions, but they are also used to facilitate smart contracts and other digital transactions.

Although blockchains are not a brand new concept – they have been around for almost 15 years – they are becoming more widely used and accepted. Many individuals and organizations already use blockchains, and new uses for blockchains are constantly being tested. Unfortunately, as their popularity has grown, so has attackers’ interest in targeting them. If security is not considered for blockchains, their money and transactions are at serious risk of disruption and theft.

How does security work in blockchain technology?

Blockchain technology creates a distributed ledger of transactions that uses cryptography to protect its integrity. In a blockchain, data for one or more new transactions is bundled into a block. Blockchain participants perform complex cryptographic calculations (called mining), often competing to be the first to solve the problem. The result is a cryptographic hash for the new block that accounts for the cryptographic hash of the previous block.

Next, the block containing the new hash is provided to the blockchain network’s participants. The participants check the block by performing calculations on it. If it’s valid, they add it to their copy of the blockchain. Once most participants agree that the block is valid, the block is added throughout the blockchain network. No further changes to that block are allowed.

This approach avoids having a central authority that must be trusted in the middle of transactions. It also avoids having a single point of failure for the blockchain. Using the previous block’s hash when calculating the new block means that any attempts to change or delete a block can be easily detected by all blockchain participants. This makes blockchains almost tamper-proof.

How secure is blockchain technology?

A common misconception is that all blockchain technology is well secured because it relies on cryptography. While it is true that blockchains all use cryptography, there are two major caveats:

Fundamentally, blockchains are software code, so they are prone to the same kinds of vulnerabilities that affect other software throughout their lifecycle. There can be large differences in the strength of cryptographic algorithms and key lengths as well as their implementation. Effective cryptographic key management is also important to keeping a blockchain secure.

Blockchain technology is not inherently more or less secure than other technologies.

Explain the different types of blockchain security

At a high level, the types of blockchains are based on their access control models:

A public blockchain (also called a permissionless blockchain) has no restrictions on who can access it or publish new blocks. Blockchain participants can be anonymous. A private blockchain (also known as a permissioned blockchain) limits who can publish new blocks. It can also limit who can access the blockchain. Each user of the blockchain must be identified and authenticated. Such a blockchain can be controlled by a group (a consortium blockchain) or an individual. A hybrid blockchain refers to public and private blockchains that are interoperable, essentially forming a blockchain of blockchains.

Because public blockchains are inherently accessible to everyone and perform no user authentication, they are much easier for attackers to target and compromise than private blockchains. The remainder of this article focuses primarily on public blockchain security.

Common threats to blockchain security

Public blockchains rely on reaching consensus among their participants. There are numerous consensus models for blockchains, and each has security strengths and weaknesses that make it better suited for certain situations. One common consensus model is called proof-of-work. Contestants solve difficult problems that require significant computing power, and producing the correct solution to the problem is proof that a contestant has put in the effort and essentially earned the right to release the new block.

Unfortunately, because public blockchains allow anyone to participate, attackers have many ways to disrupt consensus. One common threat, a sybil attack, involves an attacker adding a bunch of fake participants to a blockchain network. This can give the attacker control over most of the participants. Now the attacker can create fake transactions and have the fake participants “validate” them. A similar threat, called a 51% attack, involves an attacker or group of attackers conspiring to form a mining pool that does more than 50% of the mining for a blockchain.

There are many other threats that generally affect all software:

Routing attacks, where an attacker tampers with routing configurations so they can intercept unencrypted blockchain network traffic and gain access or change it. Phishing attacks, where an attacker uses social engineering methods to steal blockchain participants’ credentials, such as private keys and passphrases. Denial-of-service attacks, such as flooding a blockchain with large numbers of requests to prevent it from functioning.

There are also threats specific to blockchain applications. For example, double spending is when someone tries to spend the same cryptocurrency in two places at the same time. Smart contracts, which are blockchain applications that perform transactions and other processes according to a set of rules defined in their program code, have specific vulnerabilities to guard against.

Best practices for securing blockchain networks

Here are five best practices for securing your blockchain networks:

Make sure a blockchain is suitable for the transactions it would record. If records contain personal information or other sensitive information, a blockchain could accidentally expose it and cause a data breach. Another consideration is whether transactions are truly final once they occur or whether you need the flexibility to modify or delete previous transactions. Remember that blockchains are subject to all the laws, regulations and other cybersecurity and privacy requirements that any other software must meet throughout its life cycle. Identity management is important. Even in public blockchain networks, participants still need to know that they are communicating with the legitimate network. For private blockchain networks, access management is incredibly important to prevent attackers from gaining unauthorized access to the network. Conduct regular risk assessments and audits of blockchain technology and related processes, such as key management, and determine how to address discovered vulnerabilities or other weaknesses. Plan for the worst. A major new vulnerability can be found in blockchain code, a private key can be stolen, participants’ computers can be compromised – many things can go wrong. Be ready by having response and recovery processes in place ahead of time. There can also be disputes between participants, so be prepared to resolve those as well to avoid disrupting your blockchain.