Understanding Blockchain Attacks and their impact

blockcahin diagram

In recent years, the IT sector has contributed fundamentally to developing technological solutions and reforming the way businesses operate. Various industries such as Finance, Health, and Manufacturing have experienced remarkable innovations from technologies such as Blockchain technology.

Since its inception in 2009, Blockchain technology has been continuously implemented into some of the most crucial sectors in our economy, such as the Finance sector. This is primarily attributed to Blockchain’s unique features: Immutability, Decentralization, a Distributed-ledger, and enhanced Transparency. However, with a new age of sophisticated security attacks emerging, even Blockchain technology is becoming susceptible to huge and almost irreplaceable damages and hacks.

Understanding blockchain attacks is very crucial to any business or individual developing or deploying blockchain solutions. This article looks at some of the most common attacks faced by Blockchain technology.

Blockchain Technology Overview

blockchain text next to a smartphone

The essence of Blockchain technology is that it is a public, shared, and carefully designed data record that allows mutually unknown individuals and institutions to share data in a reliable ledger and carry out all kinds of transactions. Blockchain’s architecture is developed using cryptographic functions that ensure security, privacy, consensus, and anonymity within the network.

Since Blockchain technology is open to the public, various researchers and institutions have developed other types of Blockchain to enhance privacy, data access, and scalability within a network. It is crucial to note that different Blockchain networks may be susceptible to different attacks and security risks.

Here are the four main types of Blockchain technology;

Types of Blockchain

Public Blockchain

physical bitcoin and etehreum

Public Blockchains are primarily associated with cryptocurrencies like Bitcoin and Ethereum. This type of Blockchain is non-restrictive and permissionless, and anyone with an internet connection can sign into the network and download the Blockchain ledger. Once registered, the user has full access to the Blockchain’s past and present records. Public blockchains do not store data in one database or server. The data is distributed to all the nodes in the network to create a peer-to-peer network. Since the network is decentralized, decisions on the ledger’s state are made using consensus algorithms such as Proof-of-Work and Proof-of-Stake, to mention a few.

Within a Public Blockchain, no valid records can be altered, and anyone can verify the transactions, find bugs and propose changes since the source code is open source.

Private Blockchain

Unlike Public Blockchains, Private Blockchains work in a restrictive and closed environment where only a few nodes with the correct authentication keys can join or access the ledger. While it generally operates as a public blockchain in terms of Decentralization, Transparency, Immutability, and Distribution, this type of Blockchain is usually on a much smaller scale. 

In most cases, Private Blockchains are operated within companies, organizations, or a specific sector in the industry.

Hybrid Blockchain

Hybrid Blockchain is a type of Blockchain that combines the features of public and private Blockchain. It allows organizations to set up private, permission-based networks and public permissionless networks, allowing them to control who can access data stored on the ledger and what data is accessible to the network. For example, Hyperledger Fabric allows organizations to create channels that would enable them to communicate securely and privately aside from the public nodes but still within a private blockchain.

Within a hybrid blockchain, data is not broadcasted to the network. Instead, it is stored through smart contracts, and only nodes with the correct authentication keys have access to the data. In most cases, a hybrid blockchain is governed by a single or a few entities.

Consortium Blockchain

A consortium blockchain works similarly to the hybrid Blockchain. However, with this type of Blockchain, governance is distributed to various organizations, eliminating the risk of one entity controlling the network.

In a consortium blockchain, the consensus procedures are controlled by pre-set nodes. It has a validator node that initiates, receives, and validates transactions. Member nodes can receive or initiate transactions.

Building Blocks of security in Blockchain to fight against Blockchain Attacks

Public Key Cryptography

green binary numbers

Public key cryptography is a crucial part of Blockchain’s architecture, and it’s used to guarantee the integrity of the transaction message incorporated within a block. Blockchain utilizes the Elliptic Curve Digital Signature that related private and public keys use for authentication. The public key is also hashed using a hash function to create a unique address used to make transactions publicly. The private key is kept secret, and it’s hashed with any transactional data to ensure and confirm an exchange is genuine.

Digital Signature

Digital signatures operate like typical signatures; they guarantee that the message is from the said node which holds the private key. Since every node or individual has a unique private key, the digital signatures in a transaction are different and rely upon the sender’s private key. Furthermore, recipients use the sender’s public key to verify the transaction is from a particular sender. 

Peer-to-peer Network and Distributed Architecture

digital world map

A peer-to-peer network is crucial to how blockchain technology maintains immutability and the integrity of the data. Unlike traditional centralized servers, Blockchain distributes its data to all the peer nodes in a network. This ensures that if one node or a section of the network is compromised, the remaining part of the network will still have the authentic ledger, which can be broadcasted to the network to get it back on track.

Frequent Blockchain Attacks, Vulnerabilities, and Weaknesses

1. Consensus and Mining-based Attacks

51% Attacks on the network

This is the most common attack on public Proof-of-Work (POW) blockchains in the cryptocurrency space. In most cases, the goal of a 51% attack is to perform a double-spending, meaning a malicious node can make the same transaction twice using the same cryptocurrency.

In order to perform a 51% attack, the malicious node has to gain control of a majority of the hash rate. A malicious node wanting to perfume a double-spend will first create a new transaction following all the pre-set protocols in a network. At the same time, the miner will start mining a private chain separate from the main chain. The malicious node will follow the usual mining protocol, but they will not include their transaction in the privately mined Blockchain, and they will not broadcast the blocks to the network for validation.

If the node controls a majority of the computing power, then their chain will end up being the longest. Following the Longest Chain Rule in a POW blockchain, the other nodes will discard the honest node and start mining on top of the malicious fork (a split in the Blockchain network). Consequently, the network treats the malicious node’s transaction as if it never occurred. The malicious node holds back the block until it is acknowledged as a valid transaction by a merchant or crypto exchange platform.

The malicious node is still in possession of their funds, and they can now spend them again. These attacks and security issues are very disastrous, especially in the cryptocurrency space, which has over 1.6 billion USD as of 2021, as stated by Global News Wire. An example happened in January 2021 on the Ethereum Classic Blockchain.

Selfish Mining Attacks

Process power to trigger blockchain attacks

According to Golden, a selfish mining attack, also known as a Block withholding attack, is a malicious attempt to discredit a blockchain network’s integrity. Selfish mining attacks occur when malicious nodes in a mining pool withhold successfully mined blocks from the network or broadcast false blocks. As a result of holding a block, the malicious node continues to mine the next block, demonstrating POW. This allows the node to be awarded block rewards while other nodes in the network adopt their block solutions.

This type of attack affects the entire blockchain network as it makes it difficult for genuine miners to append or mine genuine blocks. 

Use of malicious Malware during Mining

Malware during Mining fr blockchain attack

According to a video by Kaspersky, malware is a blanket term used to refer to computer viruses, worms, trojans, ransomware, spyware, or any other harmful computer programs hackers use to gain access to a user’s computer or infect a computer.

The malware uses a computer’s computing power of an unsuspecting victim’s computer to mine for cryptocurrencies or performs blockchain tasks within the blockchain space. 

2. Peer-to-peer Network-based Blockchain Attacks

combating Peer-to-peer Network-based Blockchain Attacks

While the distributed nature of Blockchain is a key feature, it still opens up a few avenues for security breaches.

Sybil Attacks

A Sybil blockchain attack destroys the reputation and integrity of a blockchain system by flooding the network with a large number of nodes with pseudonym identities to influence the network. While these nodes might appear like genuine nodes, they are controlled by a single malicious entity.

With Sybil attacks, malicious entities do not target an individual node. Instead, they target several nodes on the network or the entire network by generating a fork in the ledger if possible. This allows the attacker to create a new chain of blocks that they can manipulate as they control a majority of the nodes. This makes a network susceptible to double spending or even verifying malicious and illegal transactions.

Eclipse Attacks

Eclipse blockchain attacks are common with private or permissioned blockchains. Within a private blockchain, a node will depend on a certain number of pre-selected nodes to view the state of the ledger for a transaction to be considered valid.

However, suppose an attacker manages to make the pre-selected nodes choose a malicious state as the valid state. In that case, the attacker can eclipse the original ledger’s view and present their own manipulated ledger to the node.

3. Smart contract-based Blockchain Attacks

According to Corporate Finance Institute, smart contracts refer to protocols that digitally facilitate the verification, control, or execution of an agreement autonomously. So, once a smart contract has been initiated, it cannot be stopped. When the contract is fulfilled, the state of the contract is appended to the Blockchain, and it becomes immutable. This gives a guarantee to the users that the contract will be initiated as stated in the code.

However, this also poses serious risks in cases where the smart contract’s code is poorly written and full of bugs. In such a case, millions of dollars’ worth of assets might be at stake, and if a malicious node gets access to them, no one can change the contract or stop the node from transferring ownership. A great example is the DAO platform attack.

The DAO Platform Attack

DAO was a decentralized autonomous organization built on top of the blockchain platform. DAO seemed like a promising application bringing hype to blockchain space by being the most prominent crowdfunding project at the time. However, a hacker noticed a few flaws in the DAO code and managed to drain 3.6 million worth of Ether into his account. Therefore, poorly written code can be detrimental to any project build on smart contracts or deploying smart contracts.

4. Wallet and API-based Attacks

While blockchain technology provides enhanced security, most people tend to underestimate and overlook its weaknesses. In most cases, users pose the greatest threat to their blockchain wallets, and as a result, this makes them the main target of cybercriminals.

In order to obtain these credentials, malicious entities use both traditional and new sophisticated methods. According to Apriorit, here are some of the most common methods used:

  • Phishing
  • Dictionary attacks
  • Vulnerable signatures
  • Flawed key generation
  • Attacks on cold wallets and hot wallets

The Bottom Line

Over the past decade, the popularity of Blockchain technology has been on the rise. Numerous businesses have turned to Blockchain technology as the go-to technology for data security, Decentralization, transparency, and anonymity. However, it has become clear that most businesses have not taken their time to look at the cons of Blockchain technology, with Blockchain attacks being one of the major concerns. As a result, malicious entities and individuals have developed new ways to compromise the security of the blockchain ledger.

Therefore, understanding the most common vulnerabilities and attack types on blockchain technology is crucial for every business implementing blockchain solutions. It allows them to deploy preventive measures that prevent any attacks on their blockchain networks.

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