The 5 Blockchain Security Best Practices

Blockchain is a technology that is already familiar to the whole world. Developed almost 30 years ago, it became known thanks to bitcoin, a cryptocurrency that revolutionized payment technologies. Blockchain is being used in financial services, logistics, proof-of-protocol systems, as well as sales and tracking of digital products.

Also, do not forget about the blockchain network’s mining power because this area contains colossal funds, often falls under attacks, and requires a new blockchain solution security model for maximum protection (which can be ensured by conducting a Blockchain protocol audit). However, the use of Blockchain comes with certain risks that you need to be able to work with.

Blockchain Realities and Problems

Blockchain technology opens up significant new opportunities to transform the way data is exchanged, and value is transferred, but along with its benefits come new challenges. For example, blockchain security and business and governance risks are the two main barriers to widespread adoption.

As organizations find new and innovative use cases, companies must take care of blockchain security in the early stages. Companies can move ahead with this transformational technology and achieve the expected results by ensuring that every transaction sent to the Blockchain is digitally signed with properly secured keys and that the consensus logic is tamper-proof.

Risks of Blockchain and Digital Currencies

Despite the growth in the number and diversity of projects using Blockchain, this technology, like many other digital tools, carries many risks, the incorrect assessment of which can lead to the most serious consequences for both organizations and their clients. In particular, the vulnerabilities of the cryptocurrency ecosystem include:

• The inability to return stolen funds.
• The partial or complete anonymity of users.
• The lack of legal regulations to protect their data.

There are many known loss-prone incidents in which attackers targeted encryption keys for sensitive user data. Having taken possession of them, they gained access to the management of cryptocurrencies, after which they abducted them.

Cryptographic Algorithms and Traditional Security Controls

Bitcoin and Etherium use the Elliptic Curve Digital Signature Algorithm cryptographic algorithm. In case of incorrect implementation of the random number generator used for signing, when monitoring publicly available transactions, the private key used to sign the transaction can be recovered. An incorrect implementation could be, for example, using a constant as a random number or reusing the same random number.

In 2018, cybercriminals stole over $4 million from IOTA users’ wallets. All victims used the services of a malicious site to generate secret phrases.

Enterprise blockchain solutions associated with algorithms often target hackers; therefore, they practice independent hacking and regulation of all chains to avoid data security risks.

Smart Contracts and Blockchain Network

A smart contract is essentially a computer program that may contain bugs and vulnerabilities. A feature is a difficulty in making corrections after distributing the smart contract in the private blockchain network. The sources of vulnerabilities are:

• non-compliance with the ERC20 standard (Ethereum token),
• incorrect generation of random numbers,
• wrong definition of the scope,
• false verification of the sender of the transaction, integer overflow (integer overflow),
• errors in business logic,
• use of vulnerable external libraries

Consensus Algorithms

Proof of work (PoW) is subject to a 51% attack. Suppose an attacker has more than half of all computing power in the network. In that case, he gains control over its resources, including rewriting history, conducting double-spend transactions, blocking other people’s transactions, confirming their blocks, etc. Proof of Stake (PoS) consensus is susceptible to a Long Range attack, in which an attacker with a small minority of funds can create a large alternative number of blocks that will exceed the main Blockchain in length.

The main Blockchain can be changed after that. In the case of using the Byzantine Fault Tolerance (BFT) consensus algorithm, an attack is possible if one-third of the network’s computing resources are compromised.

Network Nodes

Mistakes made when setting up the infrastructure, deploying the blockchain platform, remote procedure calls, and setting up security policies can lead to the exploitation of vulnerabilities known to the attacker, followed by unauthorized addition of transactions to the Blockchain.

Blockchain network risks are understandably related to the Internet connection. In principle, the world wide web is a very dangerous place to store data since it is impossible to guarantee complete security no matter what internet service providers or protection you use. Blockchain was created for maximum protection; although hacker attacks develop, blockchain systems do not stand still and progress every day.

UI and Application Components

Blockchain technology is implemented in the web environment and is subject to all the vulnerabilities inherent in desktop, mobile, and web applications. Additionally, during the Initial Coin Offering, additional vulnerabilities are possible that allow an attack on the ICO organizers and vulnerabilities that would enable an attack on investors.

How Data Protection is Implemented in Blockchain?

The blockchain registry allows you to track all the transactions of participants. Each transfer of money, for example, bitcoins, is recorded in one of the blocks. Anyone can access it; you can always find this record and all the details if you sent or received a payment on the Blockchain. The registry does not contain information about the amount of money in the wallet of a particular user but data about their movement.

The algorithm “passes” through all transactions and calculates how much money the user has at a particular moment. Then, the system allows the transfer if there are enough of them. That is why funds transfer takes a relatively long time in non-optimized Blockchains (Bitcoin or Ether 1.0).

The peculiarity is that all transfers occur in chronological order. Therefore, sometimes a queue is formed, which the blockchain “parses” for a long time. Understanding the principle of data protection can be illustrated as follows.

All transactions are recorded in a notebook, each page of which is a block. It is impossible to tear a page from a notebook, just as it is impossible to cross out or erase already recorded data. If the listing is wrong, another operation must be performed in the opposite direction.

To avoid destroying the notebook or maliciously changing information, copies of these notebooks are distributed to all participants. And the information in them is constantly synchronized. Therefore, if someone tries to correct the data in their devices, it will be visible on other copies. Thus, the “violator” will be given the “correct” copy, and his transaction will not go through.

Conclusion

Like any web technology, Blockchain is subject to the human factor’s influence and vulnerabilities inherent in mobile and web applications. Another problem is the lack of experienced developers with experience in launching blockchain projects. On the one hand, the Blockchain is improving. On the other hand, the modern blockchain security model is an ecosystem that adapts to threats and is practiced daily.

The use of blockchain technology already provides real benefits. Already existing and emerging platforms facilitate the transition to the digital economy and provide an extremely high level of security. But we must admit that the market is only approaching the state when digital blockchain technologies will become necessary for everyone.

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