8 Best Practices for Blockchain Security

How to Protect Blockchain: Problems and Solutions

Blockchain security is founded on cryptography and mathematical decision-making models. Its key advantages lie in the principles of immutability and consensus. While blockchain effectively prevents the duplication or destruction of digital currencies in most cryptocurrency systems, its applications extend beyond just cryptocurrency. This technology is widely used for storing diverse sets of data.

Blockchain security is a multifaceted subject. It is crucial to grasp the fundamental concepts and mechanisms that ensure robust protection for these systems. Implementing various measures can enhance security and sustain it at a high level, as discussed below.

Since its inception in 2008, blockchain has evolved significantly from its early predecessors in the 90s. In 2021, interest in blockchain has soared, with numerous governmental institutions in different countries adopting this technology. The concept of a decentralised financial system is gaining ever-increasing support. Distributed ledgers and the cryptocurrency economy lie at the core of the next generation of the Internet.

The development of blockchain technology and its rising popularity have given rise to new security challenges. In 2022, the losses resulting from attacks on blockchains surpassed $9 billion, making it the year with the highest number of recorded attacks in the entire history of blockchain.

Despite its strong protection against traditional hacker attacks, blockchain is not immune to vulnerabilities exploited by attackers. In addition to common phishing attempts, the blockchain faces specific threats unique to this technology, such as 51% attacks, hacking attempts, theft of private keys, Race and Finney attacks.

Given its decentralised nature, blockchain lacks a single entity responsible for security. In the realm of distributed accounting and decentralised applications, the onus lies on each user to prioritise security. Organisations and businesses that utilise blockchain must devise a comprehensive security strategy to thwart attacks.

Attackers may target various blockchain systems employed for interacting with applications, crypto assets, or identity management. Phishing, an age-old yet effective method, is frequently employed to gain unauthorised access to corporate networks and pilfer private keys. 

Combating such attacks is relatively straightforward, but it necessitates enterprises to train their employees and cultivate a culture of digital security. Employing robust email practices, implementing secure authentication, and regularly updating security systems form the fundamental steps to safeguard blockchain.

These methods are applicable to all blockchains and encompass:

1. utilising two-factor authentication;
2. implementing a whitelist of trusted senders and recipients;
3. safeguarding private keys through secure storage practices;
4. installing security updates and patches promptly;
5. employing a hardware wallet (cold storage) for enhanced security;
6. utilising a VPN for added privacy.

To elevate the security level of a specific blockchain, further tailored steps are employed.

Mitigation and Security Best Practices for Specific Blockchains

When devising a security strategy, it is essential to consider the distinctive features of the blockchain architecture. Understanding the vulnerabilities exploited by attackers aids in assessing and addressing potential weaknesses. The following measures assist in protecting against attacks and, in the worst-case scenario, mitigating their consequences.

1. Blockchain-Specific Governance 

Blockchain combines a distributed ledger and a block data structure based on cryptographic cohesion, enabling the maintenance of information integrity and availability. However, the public blockchain network faces privacy concerns, which gave rise to the concept of a private blockchain model.

Private blockchains have a distinct architecture, employing a network access model where only specific members can modify the registry. While the network remains distributed, it can no longer be considered decentralised due to the presence of an operator. This enhances the confidentiality of records, as access is granted according to security policies.

Hybrid blockchains also exist, where records from a private network are duplicated on a public blockchain.

2. Online and Offline Data Security 

Data minimisation is a common practice for determining what information is stored on the blockchain. Additionally, other objects such as cryptographic algorithms, keys, consensus algorithms, smart contracts, and network nodes require additional security measures. All these elements are potential targets for attacks.

3. Blockchain Network Security 

Blockchain relies on network connections to interact with external networks. This technology is intricately linked with IT infrastructure, databases, and servers, all of which have vulnerabilities, making the blockchain susceptible to potential non-specific threats. A comprehensive security strategy should encompass node and protocol verification, as well as scrutiny of service providers.

4. Blockchain Application Security 

Data access is often facilitated through applications, making them susceptible to attacks. Implementing robust user authentication enhances application security. In private blockchains, different levels of access and user “white” lists can be implemented.

5. Smart Contract Security 

While smart contracts enhance blockchain capabilities, they also introduce new attack vectors. A smart contract is signed using methods akin to transaction signatures and is placed within a specific block of the data chain. In public networks, any user who knows the contract’s address can access it. Vulnerabilities can arise from errors in the code, incorrect contract logic, or the specific blockchain environment in which the contract is executed. 

The principle of immutability can make it challenging to swiftly rectify errors once the contract is on the blockchain network. Conducting smart contract audits improves security.

6. Compatibility 

As the blockchain expands, its infrastructure grows, making it increasingly difficult to manage the interaction of interfaces and systems, leading to compatibility issues. Consequently, security bugs can emerge in different parts of the system, potentially resulting in unauthorised transactions and data manipulation.

7. Privacy Technologies 

Various methods are available to enhance privacy while preserving the attractiveness of the blockchain for businesses. One such method is the Panther Protocol, an end-to-end privacy protocol that connects blockchains. It enables the restoration of privacy in Web3 and DeFi by utilising selective disclosure of private information and zero-knowledge proofs. 

Other security enhancements include differential privacy, self-identification protocols, and the use of synthetic data for modelling.

8. Trusted Auditors and Third Parties 

Thorough audits conducted by reputable organisations that enjoy high levels of trust from customers serve as an effective means to identify vulnerabilities in the blockchain and smart contracts. H-X Technologies specialises in security compliance audits, smart contract audits, and source code audits.

Conclusion 

While the distribution and decentralisation of the blockchain offer numerous advantages for businesses, these principles also expose vulnerabilities that attackers often exploit. A well-designed security strategy and regular audits are crucial in combating attacks.