Blockchain technologies and smart contracts have taken the entire digital world by storm. And it’s not only because they brought revolutionized and simplified solutions to many complex and repetitive operations but also because of the high-tier security system. The fact that blockchain has high-level safety and protection measures is undeniable. However, the minor risk of hacking and exploitation remains even with strict security controls, policies, and protection mechanisms. That’s why most companies and enterprises today integrate blockchain penetration testing and security audits into their top priority list of preventive measures.
Here let’s explore the most common types of blockchain attacks and uncover the core security measures for decentralized platforms and apps.
Top 10 Blockchain Security Attacks and Vulnerabilities You Should Know
The blockchain space with distributed consensus mechanism, immutability, and established trust can easily claim to be the ultimate safety foolproof technology. However, new age security vulnerabilities are emerging, becoming a huge threat to decentralized networks and platforms with distributed ledger technologies. So, understanding and knowing these attack vectors is vital for anyone developing blockchain solutions. As the saying goes, prevention is way better than cure.
Below, we picked the top 10 most common blockchain security attacks from the four main vulnerability groups.
- Consensus and Ledger-Based Hacks
- P2P Network-Based Hacks
- Wallet-Based Hacks
- Smart Contract Attacks
Let’s have a look.
#1 Mining Malware
Hackers use malicious files to access the computing power of victims’ computers and data to mine cryptocurrencies. According to the latest reports from China, over a million computers were infected by this type of malware. As a result, fraudsters managed to mine over 26 million tokens of different cryptos.
#2 Selfish Mining Attack
Most blockchains consider the longest chain as the true version of a ledger. As such, a selfish miner can easily try to keep creating blocks in stealth mode on top of the existing chain. Then, he can easily publish his private fork when he succeeds in building a lead of over several blocks compared to the existing network chain.
And this fork, in turn, becomes the accepted truth because it’s the longest chain. Block withholding is an effective way for hackers to get a small window for double spending based on the ability to build a good new block lead through a stealth chain.
#3 51% Attack
Such an attack is possible when miners control 51% and more of the blockchain network’s mining power. After getting enough hashing power, attackers can easily make various transactions and operations through the blockchain network.
The 51% attack is very common in small blockchain networks. Platforms like Bitcoin Gold, MonaCoin, and Verge have all fallen victims to this type of attack. However, the possibility of large networks becoming a target of such attacks is not impossible. On the other hand, private blockchain networks are not vulnerable to 51% attacks.
#4 Finney Attacks
This type of attack is also known as a double-spending attack. It happens mostly when a person accepts unconfirmed transactions on the blockchain network. At first, the attacker mines a block with one of the two transactions and keeps it stealthy. After the merchant agrees to accept and validate transactions, the attacker sends him previously transacted currency and blocks the broadcast.
#5 Race Attack
Race attack is another variation of the Finney attack. The only difference is that the hacker doesn’t necessarily need to pre-mine the block with the transaction he wants to double-spend. Here, the attacker sends an unconfirmed transaction with the same coins to the target merchant and simultaneously processes another transaction to broadcast to the network.
#6 Sybil Attack
This type of attack is mostly seen in peer-to-peer networks, where a node in the blockchain network operates several fake identities simultaneously and undermines the computing power in reputation systems. Sybil attacks are mainly about gaining the primary part of the influence in the entire network to carry out illegal actions in the system.
#7 Eclipse Attack
This is a special type of cyberattack where a hacker creates an artificial environment around one user or node to manipulate the target node into wrongful action. When the target node is isolated from its legit neighboring nodes, an eclipse attack can create illegitimate transaction confirmations and other effects on the network.
#8 Mining Pool Attacks
For most popular cryptos like Bitcoin, it eventually becomes impossible for individual users to earn profit. Therefore, miners, in many cases, unite their computing power by creating mining pools. Some popular Bitcoin mining pools include ViaBTC, AntPool, and BTC.com. Together they represent almost 52 % of the total hashing power of the Bitcoin network.
As such, mining pools become a catchy target for malicious miners. A malicious miner tries to gain control over pools both externally and internally by exploiting security vulnerabilities in the blockchain network’s consensus algorithm.
#9 Routing Attack
Blockchain networks rely mainly on real-time, large-scale data transfers. As a result, attackers can intercept the transferring data when it’s going through the Internet service providers. Network participants usually can’t see the cyber threat during routing attacks, so everything seems normal. However, behind the visible scenes, hackers have already extracted sensitive and confidential data or tokens.
#10 DDOS Attack
The next widespread type is a Distributed Denial of Service attack. Here, an attacker tries to make the network’s resources unavailable to other miners by flooding it with many requests to overload the system. All these requests come from the same source, making preventing majority attack attempts easier.
Fraud and Cyberattacks Examples
Here let’s review some of the biggest cyberattacks and frauds over the last few years.
- The DAO Attack: One of the most famous exploitations in the history of cryptos is the DAO Attack. Decentralized Autonomous Organization was considered a prominent feature of Ethereum. So after the company Slock started crowdfunding for The DAO project, it got a massive response and collected over 12,7 million Ether. However, hackers managed to find a vulnerability in the smart contract code, where a withdraw function could be executed, verifying the settlement of the incoming transaction. So this enabled him to pull about $70 million out of the company’s crowdfunding.
- Parity Multisig Wallet Attack: This attack belongs to the group of wallet-based hacks. It took place because of the vulnerability in the party client’s digital wallet and resulted in holding up over 500.000 Ether. The parity Multisig Wallet used a centralized library contract to reduce the transaction fees. However, they have left some crucial functions open, leading to a critical vulnerability later exploited by the hacker. The hacker added his account in the library contract as an owner, so for all crypto wallets implemented after, he became a joint owner.
- Wormhole: This cryptocurrency platform was hacked in February 2022. Wormhole is a communication hub for the Solana network and other financial institutions. The total loss of the company was valued at $326 million. According to the company’s report, the attack resulted from faulty account validation.
Although it’s a fact that Blockchain is a prominent example of emerging technologies that have brought many positive changes to the current digital world, there are still multiple problems coming along. Some key ones include: Lack of regulation creates a challenging and risky environment, Security issues resulted from various vulnerabilities and smart contract code flaws, Higher energy consumption.
Day by day, with the growing popularity of blockchain technology, the number of users and crypto miners also increases. As a result, the blockchain industry has become a sweet target for various hacking groups and attackers. They carefully examine the target network’s security system, including smart contracts, user wallets, private keys, and crypto assets, to find and exploit possible vulnerabilities. In a successful attack, the network owner or cryptocurrency exchange can face various damages, such as financial loss, data leakage, or more.
Generally, a blockchain application includes nodes that make and process transactions. For example, the Bitcoin network consists of multiple nodes that receive and send transactions and honest miners that add all approved transactions to the blocks. As such, network hacks cover all hacking attempts resulting from their vulnerabilities and security issues. The most common network hacks include a Sybil attack, Finney attack, 51 % attack, and other attacks.