While cryptocurrency transactions have become the epitome of the most secure way of transferring value, its security has always been a subject of debate. People who truly understand the application of blockchain and cryptocurrency are aware of its robust security. But those who know Bitcoin just casually, hardly understand its fundamental security features. It often leads to the question of whether can be crypto or blockchain hacked.
Let’s find the answer to this by diving deeper into blockchain security and potential threats that could compromise its unanimous security standards.
What Makes Blockchain Secure?
Blockchain technology is vastly secure by fundamental design. It stores and manages a large-scale of data with several layers of protection and encryption algorithms. The features and functionalities such as immutability, distributed network, and irreversible transactions put blockchain at the top compared to traditional database management systems.
By combining cryptography algorithms and distributed data management, blockchain technology is proven to be the safest and most secure way of transferring information. It also has a no-alteration policy meaning that the data can not be changed once it is stored in a block of blockchain. Moreover, every new block makes the blockchain more secure as it consists of the previous block’s hash and this chain goes on and on.
For instance, Bitcoin is currently the biggest blockchain application and has faced zero security incidents till date since its inception in 2009. Despite Bitcoin software not being controlled by any central entity, it has been working continually as it should have been for a decade now.
How Blockchain Could Be Hacked?
From a technical perspective, it’s impossible to hack blockchain’s code. No one can get into blockchain software and make changes to existing data. This is because the blockchain is spread among network participants and each of them has a copy of the whole blockchain. To make a change in one record, the hacker would need to change it in every database copy.
However, it is somewhat possible that Blockchain could be attacked from outer environments where it has a few drawbacks. One of the most known drawbacks is the ‘51% attack’ which refers to a situation where more than 50% of the blockchain’s hash power comes under the control of a group or entity.
Let’s understand all these probable scenarios that could lead to a compromise in the security of blockchain;
51% Attack
The 51% Attack is an attack where more than 50% of the blockchain’s hash power is controlled by a single entity. This brings the advantage of self-validating blockchain transactions to that entity which can validate even fraudulent transfers of assets. The popular Bitcoin hard fork, Bitcoin SV has been a victim of 51% attack in the past.
As mentioned above Blockchain is a distributed network and it is managed by several participants. When a new data transaction is uploaded to the blockchain, all those participants verify and validate it before finalized for storing permanently. This is where the conditions are checked such as if data matches with previous blocks or if newly added data is valid or not.
While having most of the hash power, the attacker would not need any other validation for their transactions as they can approve it themselves. Such a situation will also enable double-spending as attackers could even execute non-confirmed transactions. Moreover, the attacker could also commit substantial changes to the blockchain network like modifying consensus, rewriting transaction history, and other harmful actions that make the blockchain unhinged.
However, the 51% attack is difficult to execute as it would require a huge amount of computational power. The chances of it occurring for leading blockchain networks like Bitcoin and Ethereum are near zero. It would come at an unbearable cost and significant resources which are impossible to achieve.
As an example, the total hash rate of Bitcoin is 548.45 TH/s, according to Hash Rate data from Ycharts. The attacker would need to achieve over 224 TH/s hash rate to get control of the Bitcoin network. To achieve that, the attacker might have to purchase specialized Bitcoin mining machines that cost several billion dollars.
Technical Loopholes (Bugs)
Another way of hacking Blockchain could be exploiting loopholes in the blockchain software code. A loophole could be referred to as an exposed bug in the blockchain software. It might allow an attacker to execute malicious code comprising the security of blockchain.
A blockchain is designed by combining thousands of sets of coded instructions and functions which all work together to keep it running. While in development, the developers could unknowingly leave a bug that could become a problem later. Although these bugs could not affect the functionality of a blockchain, but they might enable different ways of misusing.
In a recent case, the emergence of Bitcoin inscriptions was a much-debated topic where some core Bitcoin developers said that it was an exploit of a bug on Bitcoin.
Smart Contract Vulnerabilires
While the base of blockchain can hardly be hacked, blockchain-based smart contracts are majorly prone to hacking. Smart contracts are used to build and deploy a variety of decentralized applications (dApps) on the blockchain. These contracts consist of certain instructions that are executed simultaneously when some predefined conditions are met.
Smart contract exploit events are the major occurrence of security incidents in the blockchain and cryptocurrency industry. As these contracts are mostly open-source, hackers outsmart in finding limitations in the codebase and find exploits in its functionality resulting in the loss of millions of crypto assets.
As all these above-listed events are harmful to the blockchain, there are also some threats causing danger for user-owned cryptocurrency assets.
Blockchain Security Checklist
Fighting all these threats requires knowledge and understanding of security parameters in the blockchain industry. Followings are the major security checkmarks that every blockchain project must have to pass.
Audits
Security audits are heavily dependent when it comes to blockchain security. The audit generally includes finding potential risks and performing security analysis on the codebase of blockchain or smart contracts. The goal of the audit is to check every function and program file within the blockchain codebase and execute each separately. This assessment would be essential for a project that is being launched.
Penetration Testing
Penetration testing is considered the most important security checkmark in the tech world. It involves testing the features, functionalities, and strength of the blockchain by ethical hackers or security experts. The main purpose of penetration testing is to find bugs and loopholes in blockchain software while extending its capabilities. This would allow developers to test the final implementation before it goes live for public use.
Advanced Security Features
Some blockchain projects opt for additional security features like layered consensus, zero-knowledge proofs (ZKPs) based data validations, etc. These advanced blockchain security features could be developed using a variety of tools and code libraries available.
Final Thoughts
Security is the most important element of blockchain that wins the trust of users, investors, and all other associated entities. While a blockchain cannot be hacked as traditional databases, it is still prone to several attacks that break its security. Although the new generation blockchains are developed using more security features and advanced functionalities where first-generation blockchains, like Bitcoin and Ethereum, have their limits.
FAQs
What is blockchain security?
Blockchain security is the practice of making a blockchain safe and secure from bad actors.
Can blockchain hacked?
It is nearly impossible to hack a blockchain and alter the data but some outer threats like a 51% attack could lead to the compromisation of blockchain.
What is 51% Attack?
A 51% attack is a type of blockchain security incident where more than half (>50%) of blockchain hash power comes under the control of a single malicious entity.
