The over-hype of the blockchain, cryptocurrency and decentralized finance (DeFi) infrastructure was quite a show. Recent events have shown that a lack of understanding of emerging technology, exaggerated security features, and an overrated absence of centralized control are responsible for the misconceptions about blockchain.

Anonymity was a major hallmark of cryptocurrency transactions and investments. However, it has been argued that if cryptocurrency transactions are touted to be anonymous, how then were cybercriminals able to hack wallets and decentralized ledger systems? Reports that authorities are able to retrieve stolen bitcoins and ransom payments have forced many to rethink blockchain anonymity for pseudonymity.

The cryptocurrency crash did not help issues. Blockchain’s acceptance gained traction due to the popularity (perhaps notoriety) of bitcoin and other cryptocurrencies. Overnight, cryptocurrencies produced nouveau riche and became criminals’ preferred means of payment.

It shouldn’t be a surprise that blockchain is under scrutiny due to the cryptocurrency crash and recent high-profile cyber incidents. While it is easy to dismiss skepticism about blockchain’s capability to deliver utopia popularized by opportunists and enthusiasts, the failure to acknowledge the limitation of the technology and its vulnerability to software flaws are partly responsible for the rise in successful cyberattacks.

So, What Really is Blockchain?

Blockchain is a distributed ledger technology that allows the transparent sharing of transactions and assets within a network. As an advanced database system; blockchain records, stores, and tracks blocks of transactional data.

The technology builds on shared consensus, record immutability, and smart contracts. As a result of these features, records are trusted as no single network partner can alter or delete data without consensus from the network.

As a peer-to-peer technology, blockchain facilitates faster information transfer, transparency, and trust among network participants. Other benefits include data accuracy, transaction non-repudiation, and improved efficiency.

Beyond theoretical benefits associated with blockchain, its adoption has proved to be advantageous in the real world. According to Gartner, blockchain has evolved from the “peak of inflated expectations” to real-world benefits such as the use of smart contracts in aircraft maintenance and food safety. Other benefits include the use of blockchain to generate value in the supply chain, healthcare, retail, finance, and other sectors.

Recent Blockchain Cyber Incidents

According to Immunefi, threat actors stole more than $1 billion in Q1 2022 due to vulnerabilities in blockchain platforms. Hackers purloined more than $667 million in Q2 and $398 million in Q3 respectively. Between Q1 and Q3 2022, the community lost more than $2.3 billion to hacks and scams. 97% of these losses were due to cyber incidents.

More than 98% of hacks occurred on DeFi platforms, pointing to the severity of exploitable flaws in one of the major features of blockchain technology - decentralization. Both BNB and Ethereum were the most targeted chains in Q3 2022. BNB suffered 16 incidents (28.6%), while Ethereum recorded 13 incidents (23.2%).

An analysis of some of the projects affected by cyberattacks points to extensive inadequate cybersecurity controls. Compromised companies included Binance (the world’s largest cryptocurrency exchange), Nomad Bridge (a cross-chain communication standard), Beanstalk (a decentralized stablecoin protocol), and Harmony Horizon (a layer-1 blockchain bridging protocol).

There were also Ronin Network (a crypto wallet and NFT game operator), Wintermute (a global crypto market marker), TribeDAO (a decentralized autonomous organization controlling three projects), Wormhole Network (a bridge that facilitates digital asset movement across blockchains), and many others.

           *Photo by Sea and Sun - stock.adobe.com*

Broken Links in Blockchain

Threat actors exploit vulnerabilities in blockchain to compromise projects and platforms. As DeFi platforms increase in adoption, their attack surfaces grow, leading to more exploits as seen in Q3.

DeFi projects are more prone to cyberattacks due to a lack of appropriate security controls. Improper management of forked code is another reason why DeFi gets easily hacked. In 2021, the majority of the $14 billion lost in cryptocurrency occurred on DeFi platforms.

The lack of secure key management exposes blockchain to exploitation. An automated cryptocurrency lending platform was exploited through a compromised private key, affecting team wallets on different chains.

Threat actors leveraged vulnerabilities in the Domain Name System of an interoperability protocol to perpetuate a DNS hijack by redirecting users to a hacker-controlled frontend.

Vulnerable blockchain endpoints are providing threat actors with rewarding opportunities to wreak havoc. Threat actors also weaponized vulnerabilities in contract source code, virtual machines, and cryptographic algorithms.

Malicious mining software exploited unpatched vulnerabilities in operating systems. According to Kaspersky, the number of new miner variants exceeded 150,000 in Q3 2022, a 230% increase.

Phishing attacks and other social engineering tactics impact blockchain networks. While these attacks are not particular to the blockchain, there has been a significant increase in blockchain phishing attacks. Cryptocurrency phishing increased by 257% in 2022 from 2021.

Social engineering was responsible for 54% of cyberattacks targeting cryptocurrency and digital wallet owners. The threat posed by cryptojacking spread beyond blockchain platforms to internet infrastructure. Leveraging social engineering as the initial attack vector, cryptojacking in the finance sector increased by 269% in the first half of 2022.

In 2014, a hacker performed a Border Gateway Protocol (BGP) hijack by redirecting traffic from 19 internet service providers (ISP) to steal bitcoins. Also know as a routing attack, blockchains are susceptible to this attack as a threat actor can intercept data before reaching an ISP, thereby disrupting access to real-time data transfer needed to form a consensus and complete transactions. Users don’t typically recognize this diversion, thus amplifying unauthorized data access or disclosure. In Q1 2022, there were over 6 million BGP hijacks.

A consensus control attack focuses on achieving the majority of community consensus which gives a hacker control of the network. Two major examples include Sybil and 51% attacks.

In a Sybil attack, the threat actor acquires majority control by creating nodes to operate fake identities. A successful Sybil attack gives a hacker the ability to gain the majority of network influence, perform unauthorized actions, block users from the network, undermine legitimate network authority and execute a 51% attack.

A 51% attack enables a threat actor to control at least 51% of a network’s hash rate. A successful 51% attack allows a hacker to modify or reverse completed transactions, enable double-spending, prevent transaction confirmation and ruin the integrity of a blockchain platform. Examples of successful 51% attack include Verge, BTG and Ethereum.

Insider threat is increasingly becoming a major concern for the community. Recent cryptocurrency crash is a result of rug pulls as project developers defraud investors. In 2021, there were over 1,300 rug pull scams, resulting in billion of dollars in losses.

Other security issues include double-spending, transaction malleability, selfish mining, fork after withholding and flash loan attacks. The community should also be wary of Finney, eclipse, vector76, race, proof-of-stake, and distributed denial-of-service attacks.

How to Keep the Blocks Well-Chained

A securely implemented blockchain ecosystem provides a ton of opportunities for businesses and users. With any technology or business operation, there are always security issues that could cause adverse effects if the right controls are not in place. Without a doubt, blockchain has several exploitable vulnerabilities.

However, the focus should be on cutting through the cloud of hype to ensure adequate controls are implemented to protect the ecosystem. Here are some controls to reduce cyberattacks:

• Enforce acceptable consensus algorithms.
• Implement monitoring capabilities to track changes in nodes’ behavior and mining pool.
• Install antivirus on endpoints and patch known vulnerabilities.
• Implement web application firewall and secure routing protocols.
• Emphasize appropriate security awareness, particularly common social engineering tactics.
• Improve browser security to prevent crypto mining and crypto-jacking attacks
• Patch vulnerabilities in contract source code, virtual machines, and cryptographic algorithms.
• Ensure strong access controls (such as strong passwords, and MFA) are enforced.
• Implement proper key management and use strong encryption protocols.
• Validate that APIs have no inherent security flaws.
• Develop innovative blockchain governance.

The Future is a Secure Blockchain

Blockchain isn’t going away anytime soon. Cryptocurrencies and DeFi are just part of the innovative technology. Modern businesses will continue to disrupt due to blockchain innovation. Businesses that avoid adopting blockchain should learn from organizations that paid dearly for delayed cloud adoption. To prevent such a risk, organizations should implement secure blockchain adoption strategies.