People often hail blockchain as the impenetrable Superman of endpoint security. But with the ever-evolving digital landscape, how effective is this technology today? What challenges can we consider as its kryptonite? Find out all the answers in this guide and explore the capabilities and limitations of blockchain security.

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This Article Covers

• What Is Blockchain Security?
• Types
• Enterprise Blockchain Security
• Key Features
• Examples
• Blockchain Attacks
• Challenges
• Fraud Instances
• Best Practices
• Blockchain Penetration Testing
• Questions To Ask
• Next Steps

What Is Blockchain Security?

Blockchain security is an all-inclusive risk management module that protects blockchain networks against malicious attacks and fraud. It uses principles of assurance services, decentralization, cryptography and best cybersecurity practices to safeguard against cyberattacks and breaches.

A consensus mechanism helps validate and verify each block’s transaction. Many consider blockchain “unhackable” and transparent due to its decentralized nature and security features. Cryptocurrencies like Bitcoin, Ethereum and Litecoin use blockchain security to secure transactions and provide transparency to customers.

Private sector industries such as insurance, real estate, digital advertising, internet security, healthcare, eCommerce and manufacturing are also adopting blockchain technology to efficiently manage, track and record business transactions with enhanced security and accuracy.

The global blockchain market is estimated to grow at a CAGR of 68% from 2023 to 2032. The primary reasons for the popularity of blockchain security are:

• It ensures transparent activities and traceable users.
• Blockchain prevents you from altering transactions after recording them.
• The system is decentralized with multiple database entry points.

How Does It Work?

Blockchain security protects each transaction through the following steps:

• You initiate a new transaction.
• Peer-to-peer computer networks receive the transaction.
• A new block created in the blockchain records data and sends it to the network node.
• The network nodes verify and validate the transaction’s authenticity.
• After verification, it groups transactions into blocks.
• The blocks are connected to record transaction histories and added to the existing blockchain.
• After blocks are permanently recorded and stored in the blockchain, the transaction completes.

What Exactly Is Blockchain?

Blockchain is a DLT or distributed ledger technology that organizes data into blocks, and every block carries a bunch of transactions. Whenever a block exceeds its capacity to hold data, the next block stores the information and chains itself to the previous one to create a “blockchain.”

Blockchain is distributed and duplicated across computer networks, allowing authorized stakeholders to view, record and share encrypted transactions and data. The blocks connect to each other with a cryptographic hash chain. It’s a decentralized process that aims to safeguard digital transactions and mitigate the risks of cyberattacks.

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Types of Blockchain

Based on the level of security, there are three categories of blockchain: public, private and consortium. You can broadly differentiate them according to network access level.

Public Blockchain

A public blockchain allows everyone to participate in basic network activities. It provides access to all members to read, audit and write activities to ensure the decentralized and self-governed nature of the network. The participants remain anonymous and use internet-connected computers.

It incentivizes new members to join the network and keep it agile. Also, various participants accessing a public blockchain protect it from cyberattacks. The more members join the network, the safer it is.

While public blockchains are great for blockchain security, they consume heavy energy for maintenance. Other disadvantages include lack of privacy, risk of attracting malicious participants and loss of anonymity.

The best example of a public blockchain is Bitcoin, which uses mining to achieve consensus. Computers on Bitcoin public networks, known as miners, solve cryptography problems to validate a transaction.

Private Blockchain

As the name suggests, a private blockchain network is not open to the public. You can only access or join the network through a verified invitation. Network operators generally validate the invitation based on a predefined set of rules through smart contracts and automated approval.

Private blockchains can limit the number of users who can mine and get rewards. Also, a few members control the shared ledger. Network owners can edit, override and delete any entries they deem unnecessary.

It offers a closed database with limited people to edit and perform transactions. These blockchains focus on immutability and efficiency instead of anonymity. Industries such as payroll, finance and accounting consider these features crucial to run their operations.

Private blockchains use “selective endorsement” to offer access to a limited number of people and form a business network. These are highly centralized since an entity has ultimate control over operations. In the case of a consensus mechanism, limited validators reaching a transaction consensus make them susceptible to vulnerabilities.

Consortium Blockchain

As you might have guessed, a consortium is a middle ground between private and public blockchains. It uses a “semi-permission” approach that partly decentralizes the process while giving an operator some control over the network. It allows participants approved by a central authority to participate in the blockchain consensus.

Though consortium blockchain is single-party controlled, it’s not monopolized. It has fewer network nodes than public blockchain, making it more secure. This blockchain protects the identity of members to ensure privacy. Disadvantages include higher costs, complicated operations and more regulations.

Enterprise Blockchain Security

As organizations shift their assets to the digital area, ensuring their security becomes crucial. Consequently, many businesses have begun implementing blockchain security to protect consumer data from unauthorized access and breaches.

You must consider specific safety controls to ensure comprehensive security if you’re building or implementing an enterprise blockchain application.

• Identity and access management (IAM) helps prevent any unauthorized access to your systems.
• You must consider data privacy features to protect customer information on your platforms.
• Ensuring secure communication channels minimizes the risk of third-party eavesdropping or MITM attacks.
• Private keys are crucial to unlock and sign transactions. Key management deals with this section.
• Transaction endorsement forces several users to sign off after each transaction to provide robust security.
• Implementing smart contracts lets you identify and fix vulnerabilities that exploiters can use for data breaches.

Designing effective enterprise blockchain solutions requires expertise. Take experts’ assistance in developing and deploying your solutions in production-grade platforms. Also, make sure the platform you choose supports both on-premise and cloud-based implementation methods.

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Key Features

Blockchain offers several unique features that make blockchain security effective and help prevent complicated cyber attacks:

• It establishes consistency to guarantee coordinated data updates in all nodes throughout the blockchain record. Whenever a new block joins the chain, all nodes update themselves immediately.
• All users have access to blockchain data at all times. They can also track records on the shared ledger to maintain transparency.
• Transaction validation is one of the most crucial features of blockchain. It validates all transactions before recording them on the blocks.
• Blockchain security cuts edit access to contents while a transaction is underway to protect the integrity of transactions.
• It involves cryptography, digital signature and hashing algorithms to make the network tamper-resistant.
• Blockchain networks protect users’ privacy and keep them anonymous by using their assigned public addresses. You can also use pseudo addresses for untraceable transactions and unlinkability.
• It doesn’t allow third parties to act as intermediaries and carries out point-to-point transactions to maintain transaction confidentiality.

Examples

J.P. Morgan

It’s one of the largest U.S. financial firms that uses blockchain security to complete private transactions. It developed an enterprise blockchain application called “Quorum” to implement cryptographically encrypted transactions.

Mobilecoin

This cryptocurrency company develops business-grade blockchain security solutions for companies that don’t have the resources to build one independently. They can use various products instead of outsourcing transaction vendors, ensuring transparent and secure transactions. Social media giants like WhatsApp, Signal and Facebook use these services.

Hashed Health

This healthcare innovation firm aims to implement blockchain technology in the healthcare industry. Different sister companies under this firm focus on various blockchain modules. It has partnered with several hospitals and healthcare centers nationwide to secure patients’ information and internal communication mediums through blockchain.

Coinbase

Coinbase depends entirely on the blockchain medium to complete the buying and selling of cryptocurrency. It uses blockchain to create and store passwords and wallets in a safe database. The firm thoroughly checks all employees before giving them access to ensure the currency’s safety.

Blockchain Attacks

Many consider blockchain security to be one of the most effective methods for providing transparent, safe and reliable data storage, but it’s not perfect. Blockchain has some vulnerabilities that attackers can exploit to damage the network. Five primary attacks against blockchains are:

51% Attacks

Attackers often attempt to control more than 50% of the network’s hash power by rallying enough resources. By controlling over half of the mining power, they can alter specific points of the blockchain. Large-scale public blockchains are primarily susceptible to 51% of attacks.

Sybil Attacks

A Sybil attack draws its name from the book “Sybil,” where the protagonist deals with a multiple personality disorder. In these types of attacks, attackers use a single node to generate several fake identities, also known as Sybil identities, in a peer-to-peer network. They can use these identities to weaken blockchain security and crash the entire network.

Phishing Attacks

Threat actors primarily use phishing attacks to deceive users and steal personal information like login credentials and private keys. Attackers act as legitimate sources and send emails to trick victims into providing login information. They can use this information to access wallets and steal funds.

Routing Attacks

Blockchain involves immense real-time data transfers. Attackers intercept the data moving to ISPs and break the network into several components. This blocks the data transfer and communication between two network nodes, creating a parallel blockchain typically not noticeable to users. After the attack, the network discards all transactions and earnings of the miner on the parallel blockchain.

DDoS Attacks

Distributed denial of service attack is one of the most common attacks against blockchains to prevent normal functioning. Cybercriminals flood blockchains with an unusual number of requests or traffic, forcing them to crash.

Though attackers don’t get direct access to the data, sudden disruptions can cause serious problems to blockchain security.

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Challenges

Blockchain security is a reliable cybersecurity measure to protect digital assets and transactions. However, there are some limitations when applying security rules. Despite being decentralized and having a robust design, here are the challenges that many face in blockchain networks:

Administrator Control

The administrator has control over the entire network. Even though blockchain is a decentralized technology, the administrator can manipulate it and illegally conduct blockchain mining for personal benefit.

Millions of Users

Blockchain connects millions of users to its network. While this is good for the business, it’s problematic in terms of security. You can’t possibly verify the identity of each and every user due to the vast user base, increasing the risk of fraud and identity theft.

Endpoint Vulnerabilities

Endpoint security vulnerabilities can be a big issue in the blockchain network. Since blockchain endpoints can exist anywhere globally and on any remote device, they become prime targets for hackers seeking to steal user keys. Implementing effective endpoint monitoring and endpoint security solutions can solve this problem.

Testing Oversights

Insufficient testing on networks can often leave vulnerabilities and patches unnoticed. Threat actors can take advantage of these weak points to gain access to the entire network.

Malicious Nodes

Even if one dangerous user enters the network and creates disruptions, it can create multiple malicious nodes in the chain. Attackers can use these nodes to reverse valid transactions or introduce other discrepancies.

Fraud Instances

Some of the top notable fraud and cybersecurity incidents related to blockchain security are:

Wormhole

Wormhole, a crypto bridge company, faced a massive blockchain security attack that caused a loss of $326 million in February last year. The hackers leveraged a bug in the system that the company made public without fixing the issue. They forged a signature for a transaction, enabling them to mint wETH.

Ronin

Axie Infinity’s Ronin, an Ethereum sidechain, suffered a loss of $615 million worth of Ethereum in a massive attack in March 2022. A North Korean hacker group known as Lazarus gained access to five private keys of validator nodes. They operated undetected for a week and funneled Ethereum to other exchanges.

Norwegian authorities have been trying to track and seize portions of the stolen currency. So far, they have recovered $5.9 million in stolen crypto.

Best Practices

• Ensure robust cryptographic key management.
• Execute tokens like OIDC, OAUTH and SAML2 for user authorization, verification and authentication.
• Deploy private blockchains in a resilient and secure infrastructure.
• Use API security to protect API transactions.
• Enable IAM control for data access handling purposes.
• Safeguard identity keys.
• Perform vulnerability assessment and penetration testing (VAPT) in regular intervals.
• Patch as many vulnerabilities and loopholes as possible to prevent data breaches.
• Register for a recognized and credible blockchain security certification and make sure it complies with all security requirements.

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Blockchain Penetration Testing

Blockchain technology is gaining popularity in different sectors like healthcare, finance and technology. With this growth, ensuring effective testing becomes vital to identify vulnerabilities and loopholes at an early stage.

Penetration testing is one such method used by ethical hackers and cybersecurity professionals to thoroughly assess the state of security. After detecting threats, they can fix the gaps before attackers exploit them.

Security Testing Tools

Here are some of the most famous blockchain security testing tools:

• Manticore: It’s an execution tool that analyzes binaries and smart contracts.
• SmartCheck: This is a security contract analyzer.
• Surya: Utility tool for smart contracts.
• MythX: This is another smart contract security tool that supports Quorum, Tron, Ethereum, Vechain and more.
• Octopus: It’s a framework for security analysis that you can use for blockchain smart contracts.

Questions To Ask

Consider these questions while developing your framework to assess your company’s requirements and the effectiveness of the blockchain security solution:

• Do we have a clearly defined incident response plan?
• Have we documented the top ways to attack our systems?
• Do we use hardware security keys for production?
• Do we perform external audits?
• Does the system maintain vulnerability identification or bug bounty programs?
• Can we define and test key invariants for our system?
• Have we allocated roles and access to each team member?
• Do we perform background checks on all employees?

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Next Steps

The direct answer to whether blockchain security is completely secure is no. Blockchain is essentially a system built on codes, and like all software, it’s vulnerable to threats. However, it remains a more secure option than many other digital transaction methods.

To better protect your blockchain endpoints, check out our free comparison report to compare top endpoint security products. This report offers actionable insights to help you find the best fit for your business.

Which solutions built on blockchain technology do you use? Which other security systems do you think offer better protection? Let us know in the comments below!