Blockchain technology is often associated with cryptocurrency transactions because it is a more secure method of sending protected, secure transactions. However, what many don’t know is that blockchain can also be used for business purposes to send protected, more secure communications that are safer than traditional networks. So how does cybersecurity play a role in current blockchain technology?
Cybercriminals are increasing the frequency and sophistication of cyber attacks by pooling their knowledge and leveraging new technologies. Their use of artificial intelligence (AI), machine learning, and botnets help them perpetrate cybercrime more efficiently, causing more profound and widespread damage. Traditional solutions alone are often insufficient to meet modern cybersecurity challenges. So we must explore other approaches for improving information security, including blockchain technology.
In addition, businesses have faced new challenges, such as mitigating vulnerabilities when more staff work remotely, using personal devices and new collaborative software to connect and transmit data to business networks.
This post helps organizations manage the three steps required to drive successful, secure blockchain implementation.
- Understanding the cybersecurity risks of using blockchain
- Enforcing blockchains’ unique security controls and making the most of their advantages
- Implementing traditional cybersecurity best practices
What is Blockchain?
The blockchain, according to IBM, is “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.”
It is a system for tracking anything with value securely, transparently, and cost-efficiently.
The name blockchain comes from the fact that each transaction is recorded as a “block” of data. A block might record one or more data types, such as quantity, price, or location.
These blocks become a chain as the asset moves from owner to owner. The chain contains the details of each transaction, including their times and sequence.
A blockchain has no single point of failure. Every chain is immutable, so no participant can break a link to insert a block. It’s almost impossible to tamper with one of these cryptographic chains because an agreed consensus mechanism validates the accuracy of every transaction in the chain.
The owners of assets on blockchains can be practically untraceable, making the technology useful to cybercriminals receiving ransomware payments in cryptocurrency, such as bitcoins. However, businesses and cybersecurity professionals can also use blockchain technology.
While blockchain is known for cryptocurrency transactions, such as the Ethereum blockchain platform, blockchain use cases, current and future, vary. Blockchain technology can be advantageous to any use case that would benefit from a secure, transparent, decentralized network, including:
- Supply chain management
- Copyright and royalty protection
- Internet of Things (IoT)
While a blockchain has inherent security advantages over other networks, cybersecurity benefits, and required solutions differ according to the type of blockchain implemented.
There are two kinds of blockchain, each necessitating different cybersecurity considerations: public and private.
Anyone can join a public blockchain and can do so anonymously. This blockchain ecosystem uses internet-connected computers to validate transactions and provide the agreed-upon consensus.
Bitcoin remains the most prominent example of a public blockchain. Consensus is achieved via Bitcoin mining — using computer resources to solve cryptographic puzzles to create a proof of work by which to validate each transaction.
In contrast, private blockchains rely heavily on identity controls, mostly through digital certificates, using these to make the blockchain private through membership and access privileges. Typically, a private blockchain only allows access to known entities and organizations.
Consensus is achieved on a private blockchain via “selective endorsement.” Known users with privileged access and permissions verify transactions and maintain the ledger.
Due to tighter controls, private blockchains can be more likely to satisfy an industry’s regulatory and compliance requirements.
How Cybersecurity Impacts Blockchain Technology
Cybersecurity is built into blockchain technology because of its inherent nature of being a decentralized system built on principles of security, privacy, and trust.
In addition to transparency, cost-efficiency, and enhanced security, it is fast. Data on a blockchain network is delivered in real-time, making it useful to anyone who wants to track assets and see transactions end to end, such as payments, orders, and accounts.
It’s important to note that viewing transactions or transmissions may be instant, but due to encryption and serialization processes, each record can be slow to upload compared to typical data networks.
Furthermore, the US’s Defense Advanced Research Projects Agency (DARPA) has been working with blockchain technology to create a system that deters and prevents hackers by not only immediately flagging attempts to compromise data but also providing real-time intelligence on the bad actor.
Blockchain’s inherent cybersecurity benefits include the following:
A blockchain uses a decentralized distributed ledger system rather than relying on a single trusted central authority. With distributed ledger technology (DLT), transactions are recorded across every network node, so cybercriminals face challenges viewing, stealing, or modifying data. It is designed to create trust amongst participants in areas where trust is hard to come by.
Blockchains’ collaborative consensus algorithm means that it can monitor the ledger for unusual or malicious activity.
Strong Encryption Practices
Blockchain networks use encryption and digital signatures effectively, using public key infrastructure for:
- Validating configuration modifications
- Authenticating devices
- Securing communication
An infrastructure of asymmetric cryptographic keys and digital signatures is often core to blockchain technology, providing verification of data ownership and data integrity. In some cases, these elements eliminate the need for passwords, an attack vector through which cybercriminals frequently gain unauthorized access to accounts and networks.
Nobody can modify a recording on a blockchain ledger. If a record contains an error, it can only be rectified by making another transaction, in which case both transactions will be legible.
With increasing applications in various industries, Internet of Things (IoT) devices are often targeted by cybercriminals due to their inherent vulnerabilities. Blockchain provides additional protection for those using IoT devices.
Preventing DDoS Attacks
A Distributed Denial of Service (DNS) attack aims to overload a server with requests. It requires a focal point to target, typically an IP address or a small group of IP addresses.
However, a blockchain-based domain name system (DNS) can remove that single focal point, neutralizing this cyber threat.
While its transparency is a prime benefit of using blockchain, with everyone able to see immutable transactions, a permissioned blockchain network will allow only trusted networks to view or participate in transactions. This can be achieved with minimal governance.
Furthermore, blockchain lacks the traditional targets sought by cybercriminals, making it more challenging for them to achieve unauthorized access by targeting privacy rules.
Smart Contract Security
Smart contracts are sets of rules stored on the blockchain that trigger transactions when the conditions are met. This automation makes payments more convenient. Blockchain remains secure because its components are tested for authentication, data security, access control, and business logic validation.
Traditional Cybersecurity Best Practices and Blockchain
When implementing an enterprise-level blockchain network, whether to track currency, orders, accounts, or other digital assets, traditional cybersecurity best practices will enhance blockchain’s inherent security advantages.
Just as with the implementation of any business system, a thorough risk assessment and subsequent management process are required to ensure data protection and the safety of business systems.
Heavily-regulated industries aim to protect the public and critical infrastructure with clear guidelines regarding information security. Any blockchain implementation should be carried out with a close eye on regulatory requirements.
Disaster Recovery Plan
An organization’s disaster recovery plan must be updated to incorporate its blockchain technology. It must contain the names and contact details of the participants.
Following the risk management process, the business’s disaster recovery plan should be updated with scenarios surrounding the risks to the blockchain, including clear descriptions of what people must do in the event of every potential blockchain incident.
Minimum Security Requirements for Blockchain Participants
An organization implementing a blockchain solution requires detailed policies on identity verification and access management. This is a critical area for blockchain applications since it’s a potential source of strength and contributes to a firm’s vulnerability.
Since blockchains can be compromised by the theft of keys and unauthorized access to staff devices, the blockchain must be implemented in an environment with an effective cybersecurity structure.
Blockchain Security Considerations
Despite the inherent privacy and authentication advantages of using blockchains, it’s important to note they are not invulnerable to cyberattacks. Organizations implementing blockchain solutions must use the best cybersecurity practices company-wide and examine blockchain-specific risks and cyber solutions to ensure information security.
The main cyber risks affecting blockchains are:
- Theft of keys
- Code exploitation
- Compromise of physical devices
- 51% attacks
- Physical device theft
Each of these risks is within the remit of traditional cybersecurity, which is to say that cybersecurity best practices can reduce these risks to information security.
Theft of Keys
As secure as a blockchain may be, things can go badly if a cybercriminal manages to steal keys. Various thefts of keys have led to the loss of millions of dollars worth of Bitcoin.
In 2016, $72 million worth of Bitcoin was stolen from Hong Kong’s Bitfinex exchange, taken from users’ segregated wallets. The theft represented about 0.75% of Bitcoin in circulation, causing a 23% slump in the currency’s value.
Cybercriminals use phishing — among other methods — to access wallet key owners’ access credentials. They can create emails that look as though they are coming from an authority, demanding access credentials via fake links. If a phishing attempt fools the owner of a key, the cybercriminal can take action that causes harm to that individual and the blockchain network.
Blockchain provides anonymity, security, and convenience, but there is typically no recourse when stolen keys are used to steal currency.
An exploit is a mechanism by which a hacker takes advantage of a vulnerability. In 2016, a hacker used code exploitation to steal $50 million worth of Ether, the currency for the Ethereum platform.
Hackers are adept at intercepting data in transit. One of the problems they must solve is where in the data transmission process they are most likely to succeed. In the case of blockchain transactions, they may be able to steal data on its way to internet service providers (ISPs), extracting confidential data or even currency.
Bitcoin mining — the process by which connected computers use their processing power to complete complex cryptographic calculations to verify Bitcoin transactions — is also an attack vector in public blockchain networks.
A 51% attack involves a hostile blockchain takeover by attaining 51% of the network’s mining power. An individual or group with 51% of a blockchain’s mining power has control of the ledger and can manipulate it.
Exploits like this remind organizations that blockchain is not infallible and cybersecurity best practices are required to protect digital assets.
Physical Device Theft
Hot wallets — virtual currency wallets, including mobile, desktop, and browser-based wallets stored on devices that can connect to the internet — are known to be less secure than cold wallets, which are stored offline.
Even if a blockchain were 100% secure (they’re not), it would still be at risk because access credentials are out in the wild. If a hacker can compromise a physical device, they may be able to make significant fraudulent transactions.
Blockchain Cybersecurity Challenges and Drawbacks
While blockchain technology offers significant benefits, it’s unclear how it will tie in with cybersecurity requirements and business needs.
One of the key characteristics of a blockchain is that parties cannot delete or modify transactions. However, this could be problematic for businesses because EU-GDPR, for example, demands that individuals have the right to delete their data, which does not fit the current blockchain model.
When implementing a blockchain solution, it’s critical to make meeting regulatory and compliance requirements a primary consideration. The organization must be able to satisfy regulators while using blockchain technology.
Because transactions are implicated in every node, increased transactions can cause issues with block sizes, slowing validation. This is one of the main reasons why larger enterprises or businesses have not adopted blockchain because the high traffic volume may affect data processing speeds. The need for additional verification and security makes blockchain technology slower than traditional systems and networks.
In the blockchain model, the owners of digital assets have complete responsibility for them. If users lose private keys, those keys are gone forever. Their digital assets cannot be claimed.
A criminal, cyber or otherwise, who manages to steal cryptographic keys can gain unauthorized access to digital assets, which are then irrecoverable by the true owners.
While encryption prevents many cyber attacks, it is not 100% effective. Man-in-the-middle attacks — in which cybercriminals intercept transmissions to view, steal, or modify them unknown to the sender or recipient — remain feasible if certain issues are present, including:
- Weak keys
- Incorrect keys
- Inadequate encryption strength
- Errors in a digital signature or certificate verification
Overreliance on Blockchain’s Inherent Security Benefits
Some businesses have been so impressed by the security advantages of using blockchain technology that they have let key cybersecurity best practices slide.
However, it’s essential that companies continue to use traditional cybersecurity best practices to ensure a secure ecosystem in which to implement blockchain technology.