Blockchain has made revolutionary changes across many industries and sectors and among them, the biggest beneficiary has been the banking and financial industry. The emergence of cryptocurrencies and their thumping success itself proves the overwhelming effect of Blockchain and represents one of the biggest success stories of Blockchain.
But in spite of the era-defining success and paradigm-shifting changes cryptocurrencies brought to the financial industry, it could not stay above criticism because of the security vulnerabilities it has been subjected to a number of times. While the success of Bitcoin and a few other leading cryptocurrencies continued to shape and dominate the throbbing digital economy, at the same time frequent cyberattacks on cryptocurrencies represent a dark reality as well. These cyber-attacks are also slowing down their overall acceptance and popularity in the market.
Considering these security vulnerabilities and risks for cryptocurrencies it is important to understand how hackers can infiltrate the exchanges and transactions involving cryptocurrencies. After explaining this we would like to explain the key security vulnerabilities for these building blocks of the digital economy.
Why are Cryptocurrencies exposed to hacking?
Cryptocurrency transactions and exchanges are increasingly becoming the prime targets of hackers and all sorts of malicious attacks. In the last year, the industry has experienced as many as five major attacks on cryptocurrency transactions. Many emerging cryptocurrencies have become the worst sufferers of these attacks and some new cryptocurrencies like Bithumb, NiceHash, and Coincheck have been the biggest victims of the attacks.
While deciphering the reasons for the Cryptocurrencies to become exposed to security attacks and hacking attempts experts point out that the 3 different security layers of crypto transactions, respectively protocol, exchange, and e-wallets are most vulnerable to hacking attempts. When it comes to security, there are basically 3 layers that come into the picture. They are respectively security protocol, the cryptocurrency exchange type, and the wallet used for transactions. Any security issues cropping up in any of these layers can ultimately help a hacker tamper with data and steal money from transactions.
Decentralized Blockchain database and centralized crypto exchanges
The power of Blockchain mainly lies in the decentralized nature of the Blockchain database. By allowing the data to be stored across a multitude of blocks while controlling access through mutual cryptographic verification, Blockchain offers ultimate security cover to data and prevents no deletion, changes, and tampering of any data registered in the database.
While Blockchain is the elementary technology for cryptocurrencies in general, the same principle of decentralization is not maintained with the crypto transactions and this is what exposes them to security risks such as hacking of exchanges. The vast majority of the crypto exchanges follow a highly centralized model that further adds to the security risks and vulnerabilities. Because of this centralized approach to carrying out transactions, there is unproportionally bigger dependence on a handful of wallets that can be easily targeted by hackers. Investing in cryptocurrency is safe, you can check out swyftx.com for more details.
Vulnerability to phishing attacks
Phishing attacks that are stealthy enough to penetrate even the hardest security technologies are often found to be the number one culprits for messing with the bitcoin and other cryptocurrency exchanges. Even just within a few years of time, several attacks of this sort took place. Just 5 years ago a large Bitcoin exchange had been the target of phishing attacks persisting for one full weak. The exchange was hacked resulting in the stealing of $5 million.
Poorly protected login and sign up data of employees
Another major source of security vulnerabilities is less secure and easily decipherable login and sign-up data used by staff employed in crypto exchanges. The weak credential data of the employees working in crypto exchanges ensure easier access for the hackers targeting transactions.
Third-party vendor risks
Risks corresponding to the third-party vendors are not just limited to the crypto exchanges, but overall too many Blockchain-based use cases and transactions. Third-party wallet applications, payment processors or gateways, Fintech solutions, smart contracts, and crypto exchanges, all are equally vulnerable to security risks.
The vulnerabilities increase simply because there is no consistent standard or protocol for integrating third-party solutions. The coding errors and bugs in these third-party solutions can ultimately be compromising the entire security aspects of crypto transactions.
Absence of protection for hot wallets
A hot wallet is basically a cryptocurrency wallet connected online to web platforms. Lack of protection for these wallets can be detrimental to the security of the transactions. There are several cryptocurrency exchanges that prefer using only single private keys for safeguarding these hot wallets. This puts the walker at risk because just by getting access to this single key, the wallet can easily be hacked. In the recent past, several attacks on crypto wallets happened by accessing private keys. The remedy to such vulnerabilities lies in the use of multi-signature keys.
Poor information security measures enforced across banks and financial institutions often contribute to the increased security vulnerabilities and risks of transactions for cryptocurrencies. Poor software security, vulnerable system architecture, and flawed coding can contribute to increased security risks for crypto data.
The increasing rate of cyberattacks and hacking attempts targeting cryptocurrency transactions and crypto wallets provide us the real basis for bigger threat perception. While Blockchain technology has become synonymous with optimum protection from data tampering and data breaching efforts, cryptocurrency transactions and exchanges have to embrace a decentralized business model to get the advantages of impenetrable Blockchain-powered security.
Juned Ghanchi is a co-founder and CMO at IndianAppDevelopers leading mobile app development company in India. Juned is responsible for designing and developing mobile apps for the company’s global clients.