Understanding Blockchain Security Vulnerabilities

Blockchain’s transparency, immutability and decentralisation often leads to the perception that the technology is secure and impossible to infiltrate. However, even the most advanced cryptographic systems can and do fail. These vulnerabilities include weaknesses in the blockchain’s underlying protocols, manipulated networks and even bugs in the smart contracts, which, if left unchecked, can result in the complete loss of user confidence. So how do blockchain security mishaps occur?

Maximiliano Stochyk, Head of Sales at CoinTerminal comments: “No project is ready for a TGE if security is secondary. Strong token metrics and a secure foundation are non-negotiable for anyone launching in today’s market.”

Different Blockchain Architecture Layers

Understanding the different blockchain architecture layers is the first crucial step in ensuring top security on these systems:

Infrastructure Layer

As the base of any blockchain system, the infrastructure layer consists of the hardware, servers, clouds and its various other components. This layer facilitates the nodes that execute that transactions and sustain the blockchain ledger.

If the infrastructure is flawed, there are unprotected endpoints, there is malware or poor configuration it can render the system vulnerable to data removal and denial-of-service (DoS) attacks.

Data Layer

This layer maintains the system of organising and structuring the data within the blockchain. It controls the processes of grouping transactions into blocks, validating them and linking them as chains through cryptographic hashes.

While mistakes and poorly designed systems can lead to weak cryptographic systems that can be exploited, the system’s design should make deep and systemically significant tampering impossible. The vulnerabilities lie within the poorly designed key management and transaction formats.

Network Layer

The Network Layer makes certain that there is communication between the nodes. Unlike the typical client-server arrangements, blockchain networks utilise peer-to-peer configurations. This means that the blockchain networks are exposed to routing manipulation. Isolated nodes that attackers misdirect with false information can be used to undermine the efficacy and reliability of the system.

Consensus Layer

This layer ensures that all transactions are done fairly and securely, often done through Proof of Work and Proof of Stake mechanisms. These are used to maintain agreement within the network on the state of the blockchain.

Application Layer

The application layer is positioned at the top and is where end-users are able to access blockchain services, including decentralised applications (dApps), smart contracts and wallets. Many attacks and hacks, particularly within decentralised finance (DeFi), stem from the application layer. Vulnerable code, inadequate auditing, weak authentication and poor authentication practices can expose systems to significant risks.

Common Vulnerabilities By Layer

All systems, even the most decentralised systems, are exposed to unique vulnerabilities that are inherent to the blockchain layer they operate on.

Infrastructure Layer: In the infrastructure layer, unpatched servers, poor node configurations and unprotected APIs can be exposed to attacks. DoS attacks and node service interruptions are a common way to exploit these gaps.

Data Layers: Data layers can be exposed to malleability, where bad actors can change identifiers for the transaction. Transactions can be replayed and resubmitted to the network. Weak private key storage can allow impersonation attacks, where wallets can be drained from hackers.

Network Layer: Sybil and eclipse attacks target the network layer. Attackers generate multiple fraudulent nodes or, by isolating legitimate nodes, gain the ability to control the flow of data, intercept and alter information or even take control of the consensus process.

Consensus Layer: At the consensus level, the risk of a 51% attack remains one of the most publicised weaknesses of blockchain technology. A single entity can control the majority of the mining or staking power, rewrite blocks, reverse transactions and freeze the network.

Application Layer: Most modern attacks are focused on the application layer. Unchecked external calls and other smart contract vulnerabilities like reentrancy bugs can lead to losing significant amounts of cryptocurrency. Front-end attacks also allow phishing users to be tricked into approving malicious transactions.

Protective Measures and Best Practices

Using best-in-class encryption methods such as AES-256 and ECDSA ensures the safety of private keys and files. Keys should be kept secure in hardware wallets or hardware security modules and for high-value accounts, multi-signature solutions should be deployed as well. Furthermore, protecting every access point with multi-factor authentication (MFA) and a Zero-Trust security framework is crucial.

Interfaces for nodes, wallets and admin systems should be tightly controlled to mitigate insider risk and external attacks. Lastly, you should conduct regular security audits regularly. Vulnerability exploitation can be avoided with routine code reviews, penetration tests and third party audits.