In this day and age, the majority of tech organizations and enterprises widely implement blockchain technologies for secure and efficient business operations. And the primary engaging feature of this digital transformation that attracts so many people and companies worldwide is its highly secure infrastructure and decentralized nature.
But is blockchain absolutely safe? Although the platform has one of the solid and high-level protection systems and the Blockchain Security Best Practices, to say that using blockchain is 100 percent risk-free would be an exaggeration. Why? Because there is no single digital ecosystem that can avoid the possibility of hacking attacks and cybercriminals’ schemes, even with all security measures and policies implemented. And so is the blockchain network.
The best proof is the recent blockchain hacks and major cyber-attacks on various well-known cryptocurrency exchanges and digital platforms, including the hack of Ethereum Classic.
This article will unfold some of the most common attack types for hacking a blockchain and the possible ways to avoid them. So, without further ado, let’s begin.
Is it Possible to Hack the Blockchain?
Blockchain is supposed to be unalterable and extremely secure, so most people think of it as an unhackable technology. However, the recent attacks and incidents taking place in the blockchain industry showed that hackers have their own ways and tricks to access and hack a blockchain system in certain situations.
However, most people mistakenly confuse blockchain hacking with the hacking of digital exchanges. Whereas centralized exchanges get hacked regularly, decentralized blockchain hacks are not very common.
Then, where are the main vulnerabilities and security glitches of blockchain technology hidden, and how can hackers slip through the iron doors of security measures?
To know where the critical problem lies, let’s break down the blockchain’s security system and understand its components along with their functions.
Decentralized and Open-Source Blockchain Protocols
The blockchain technology most cryptocurrencies use is open-source, peer-to-peer, and publicly available, which allows anyone with the proper knowledge and equipment to peek in under the hood. This is essential for attracting buyers and fostering transparency.
A blockchain protocol covers various technological mechanisms working collectively towards a single goal. For example, consensus mechanisms like proof-of-stake and proof-of-work protect networks by mitigating attacks from malicious hackers.
A significant part of cryptos on blockchain platforms use smart contracts for an automatic and secure agreement execution. These smart contracts make blockchain transactions transparent, safe, and fast.
Another security aspect of blockchain technology is hashing. Generally, hashing refers to the generation and transformation of input data into a fixed-size string executed by a specific algorithm. The use of a cryptographic hash function allows to the prevention of double-spends in blockchain, fraudulent transactions, and stored passwords.
3 Main Ways to Attack and Hack a Blockchain
We recently witnessed many hacking incidents performed through phishing attacks, weak security practices, creation errors, smart contract vulnerabilities, DDoS attacks, etc.
However, the methods and tricks hackers use for blockchain hacking don’t limit only to this. In contrast, they freshen up constantly and bring cyber security professionals a big headache in thinking of up-to-date techniques for strengthening the existing security practices surrounding the systems and withstand the newly baked dangers and attack attempts.
Here, we will review the most popular ways hackers attack blockchain networks.
#1 The 51 Percent Attack
This attack is among the most widespread hacking practices lately. In the case of the 51 percent attacks, hackers gain control over 51 percent of the hashing or computing power within a blockchain network by putting a different hash output. One example of such a scenario can be the attack on Ethereum Classic, where a hacker gained control over the network to rewrite transaction history and was able to double-spend cryptos, stealing almost $1,1 million.
All users or miners review digital transactions during standard cryptocurrency transactions to check and ensure their integrity. But, if a hacker gets control over half of the transaction process, it can cause a mess in the blockchain network. It’s also important to note that a hacker needs control over 51 % of a blockchain’s power to reverse engineer the transaction’s hash.
Generally, hackers create a “fork,” or second version of the blockchain, where certain transactions are tampered with and hidden. They are later presented as the original version of that blockchain, though they are actually fraudulent.
#2 Sybil Attack
Typically, Sybil attacks occur when most nodes are controlled only by one single entity but are full of multiple requests coming from forged identities.
Because of Sybil attacks, these multiple forged identities stop legitimate requests from coming through, which, in its turn, results in a system crash.
Another popular hacking technique common to the blockchain industry is indeed Typosquatting. This attack generally covers creating fake websites that allow hackers and threat actors to collect user data and gain access to their personal accounts. Therefore, users can be tricked into visiting a website disguised as a crypto exchange. After the individuals enter their login credentials, they unknowingly grant access to the hacker who gains total control over the user’s crypto wallets and can easily steal money
This type of attack is somehow similar to phishing and other previous attacks, where users are tricked into clicking on malicious links and installing malware to steal information.
Before we review the top widespread blockchain hacks and attacks, let’s, first of all, understand what blockchain is and how it exactly works.
Blockchain technology, also known as Distributed Ledger Technology, is implemented to preserve the integrity and transaction history of digital assets through decentralization techniques and cryptographic hashing. Due to these solutions, the transactions become more transparent and difficult to alter.
The crypto data is stored on a block of multiple cryptographic chains or interconnected databases via peer-to-peer nodes in a blockchain. Generally, each new block carries a certain number of transactions. Every time a new transaction occurs on the blockchain network, a record of that will be added to every participant’s ledger. Therefore, each database keeps a copy of the up-to-date version of public data.
The core premise behind blockchain technologies is the absence of intermediaries and third parties. Essentially, users can manage their digital data instead of controlling nodes and central authorities.
Blockchain and Cryptocurrency
Whenever people talk about blockchain technology, the first association that comes to their mind is cryptocurrency, especially the Bitcoin network. That’s mainly because blockchain networks are primarily used as a foundation to trade cryptocurrency, including Bitcoin or Ethereum.
A Bitcoin blockchain is a decentralized ledger with no intermediary controlling it. As such, all Bitcoin owners can participate in this platform, perform Bitcoin transactions and hold a copy of the public ledger. Moreover, the Bitcoin ledger is highly transparent: It relies on blockchain technology for secure and safe exchanges and for protecting the digital wallets and transaction data of end-users.
Today, most organizations also utilize cryptos for more substantial financial transactions. Some may even allow their clients to pay for different services with cryptocurrency. With this being the case, business and technology legal representatives will undoubtedly encounter crypto or any other network running on a blockchain platform in more use cases, including medical records and health databases, smart contracts, and tele-attorney services.
Although the Blockchain system is commonly known as the safest and unhackable digital ecosystem, the recent activity in hacking incidents shows that vulnerabilities do exist. There are various attacking methods, hackers use to access the blockchain’s system and tramp with users’ data. Some of the most popular attacks include DDoS attacks, Phishing, Sybil attacks, Typosquatting, etc.
In general, the decentralized nature and cryptographic algorithms make blockchains nearly impossible to hack. However, it’s not entirely unhackable, and previous attacks in the blockchain industry are proof of it.
The core technologies behind blockchains include:
– Cryptographic Keys: Public or private keys help perform successful transactions and create a secure digital identity reference.
– A Means of Computing: Computing assists in storing the records and transactions of the network.
– Peer-to-Peer Networks: These networks enable communication between multiple platforms.
In general, there are four main categories of blockchains:
* Public Blockchains: This type of blockchain is permissionless and non-restrictive, allowing anyone to sign in to the platform and become an authorized node.
* Private Blockchains: A private blockchain has a restricted environment controlled by a single entity.
* Hybrid Blockchains: Hybrid blockchains are a unique combination of private and public networks. Here the records are not public but can be verified if needed.
* Consortium Blockchains: It is similar to hybrid blockchains; the key difference is that multiple company members can collaborate on a decentralized network.