Top blockchain attacks, hacks and security issues explained

Blockchain technology has a number of security benefits. Transaction verification no longer relies on a single centralized institution. Having no single point of failure is not only an inherent security benefit of a decentralized structural paradigm, but also a fundamental philosophical and business driver.

Blockchain is also composed of several built-in security features, including cryptography, software-mediated contracts, and identity checks. It provides significant levels of data protection and integrity by enabling a distributed means of authenticating access, authenticating transaction records and maintaining privacy.

However, despite these security improvements, the blockchain market is fraught with security issues. Where there is potential for a payoff, there are malicious actors—and blockchain networks are spreading both.

Here are six factors that have created problems for the blockchain security landscape.

1. New Blockchain Mining Tactics

New technologies come with new tools and methods for exploitation, and blockchain is no exception. A new class of cyber threats is emerging, involving tactics unique to blockchain networks. This includes the following:

2. Old exploits, new platform

Just as malicious actors are innovating new attacks specific to blockchain, they are also adapting tried and tested cybersecurity attacks to use on blockchain. Examples include the following:

Phishing attacks involve malicious actors using social engineering techniques to obtain users’ credentials, install malware on users’ devices, and obtain users’ private keys and seed phrases — recovery phrases generated by crypto-wallets during setup that enable users set to access their wallets if they forget their password or lose their device. Sybil attacks are when bad actors create and use multiple fake identities to flood, bypass or crash a system – usually to undermine authority. Some of the first cases of Sybil attacks were on peer-to-peer networks. In a blockchain context, Sybil attacks involve attackers using multiple fake nodes on the blockchain network, allowing them to prevent connections and transactions, take control of the network, and perform 51% attacks. DDoS attacks occur when attackers overwhelm their target network, causing the system to slow down or crash, thereby denying services to legitimate users. A DDoS attack on a blockchain network has the same goal of taking down the system. In a blockchain DDoS attack, for example, malicious actors can flood the network with spam transactions, causing operations to slow down and preventing legitimate users from accessing it.

3. The human risk factor

Many blockchain attacks focus less on the technology and more on basic human vulnerabilities. For example, stolen cryptographic keys — private digital signatures — were the likely cause of crypto exchange Bitfinex’s $73 million breach in 2016.

Endpoint vulnerabilities are also entry points for malicious actors, such as those at the device, app, wallet, or third-party vendor level. Employees and sales staff are also targets. For example, the Bithumb crypto exchange was hacked in 2017 using an employee’s computer. Erroneous data entry and developer incompetence, even with no malicious intent, are other risks to be aware of.

4. Not all blockchains are created equal

Blockchain architectures vary greatly, especially when it comes to how different structures and components implement security creations. For example, private versus public blockchains differ in whether known entities or unknown entities can join the network and participate in authentication.

Different network configurations use different components, which pose different security risks. These configurations raise several questions: How is a consensus reached? How is identity verified? How are sidechains and/or data in transit managed? What motivates miners?

As components, algorithms, and uses for blockchain continue to evolve, so will attack tactics and threat mitigation techniques.

5. Lack of regulation

While many blockchain advocates worry that regulation will slow innovation, regulations and standards can indeed benefit security and innovation. The current market suffers from high fragmentation, where different companies, consortia and products operate with different rules and protocols. This means that developers cannot learn from the mistakes and vulnerabilities of others – never mind the risks of low integration.

Just because centralized brokers can be corrupt does not mean that decentralized record keeping is immune to corruption. Smart contracts are not a substitute for compliance – they are not legally binding. From money laundering to counterfeiting and privacy to scams, an unclear regulatory environment slows adoption and allows cybercriminals to thrive.

6. Cybersecurity talent crisis

The current cybersecurity landscape suffers from a major skills shortage. This challenge is more serious in the blockchain security space because even fewer cybersecurity professionals have blockchain expertise or understand new security risks from the emerging Web3 decentralized economy.