What is Blockchain Security & Role of Cryptography?

What is blockchain security and the role of cryptography in it? Most people tend to think that blockchain technology came into existence in 2009 when Bitcoin was launched but actually it has been there since 1991.

It only came to the limelight after Bitcoin was launched and till 2014 its initial discovery was confined to currency transactions.

Then after, the technology experienced a lot of advancements which improved its functionality and potential to be used in other financial and inter-organizational transaction areas.

And, in the last couple of years, application of blockchain technology increased manifold with different deployments and use cases across all industry sectors.

Today blockchain solutions are created and used in managing distributed databases, cyber security, digital transactions, banks, healthcare and more.

This technology increases security with its principles of decentralization, cryptography, and consensus mechanisms.

Blockchain technology has made such services more consistent, straightforward and safer.

New opportunities were created and explored but with it came security risks alluring cybercriminals to penetrate it and target organizations.

Cryptography plays a significant role in ensuring the safety and security of blockchain.

If you are unaware of it, here is an article that will enlighten you and also guide you to ensure that the blockchain solution that you use is safe and secure.

In this guide you will find that everything related to it is discussed right from the basics of blockchain and its working process to best and secure practices, coding, and penetration testing.

Most importantly, you will come to know about the different attack methods and the ways to protect your blockchain solution from each of it.

What is Blockchain Security and the Role of Cryptography in It?

It is better to start from the basics in order to gain a comprehensive knowledge about blockchain security and the role of cryptography in it.

Blockchain, as you may know, is an innovative technology that offers better solutions to the individuals and organizations to process and store data.

It is actually a Distributed Ledger Technology or DLT that consists of structured distributed blocks.

Each of these blocks are linked with the previous block with hashes and create a cryptographic chain.

Each of these blocks stores all relevant data of a transaction or a mix of transactions.

This structured data comes with innate security qualities which ensures trust since the blocks are very difficult, if not impossible, to tamper with.

The authenticity of the transactions is verified and confirmed by each participant in the network through a consensus mechanism before it is added to the chain.

This assures that the transaction is legit and correct.

Since there are large numbers of computers or nodes involved in the distributed blockchain network, there is ideally no single point of failure. Also, one single user cannot alter the records of a transaction.

And since it is a decentralized and distributed public ledger network, everyone participating in it can view the records.

Therefore, the significant reasons that the blockchain technology has become so popular today can be summarized as follows:

• It is decentralized and therefore cannot be claimed by a single entity
• It stores data cryptographically and is therefore safe
• The consensus mechanism ensures that it is tamper-proof and
• It is transparent and is untraceable.

Though these are the factors that make a blockchain network safe and secure, blockchain security is a bit of a different subject.

To put it in simple words, blockchain security is a broad risk assessment process that is done on a blockchain network or solution to ensure that it is secure.

Typically, blockchain security is accomplished through the execution of different security testing methods and several cyber security frameworks.

Moreover, secure coding practices are also followed to make the process all the more inclusive and safe from security breaches, online frauds, and other cyber attacks.

Security Difference by Blockchain Types

As you may know, there are three major types of blockchain networks and the security aspects of each vary as well.

The three types of blockchain that excludes traditional DLT and databases are:

• Public Blockchain – All transactions happening on this type of blockchain network are transparent. This signifies that the subtleties of the transactions can be analyzed by anyone such as in Bitcoin and Ethereum.
• Private Blockchain – Just as the name signifies, all transactions happening here are private and therefore these can be accessed only by the members of the blockchain system who are allowed to join it such as in R3 Corda and Hyperledger.
• Consortium Blockchain – Much similar to the private blockchain networks, the consortium blockchain networks are however not governed by any one person. Instead, it is governed by a group or consortium of participants that can be anyone from supply chains to national banks or governments such as in Quorum and Corda.

Therefore, you can see that the differences in the types of blockchain networks are mainly due to the type of participants allowed to perform on it and access the data.

As for the public and private blockchain networks, anyone can join in and they usually remain anonymous.

However, there is a slight difference in their operating methods to ensure security. For example:

In a public blockchain computers connected via the internet are used for validating transactions and achieving consensus.

There are no special access or permission requirements in this type of blockchain network to maintain the ledger.

Moreover, it does not need more identity or access control.

On the other hand, in a private blockchain network identity of the participants are used to confirm their membership and allow access privileges.

Selected and known organizations are also allowed to join a private blockchain network where consensus is achieved through a process called ‘selective endorsement’ which allows only the known users to verify and validate the transactions.

Immunity to Cyber Attacks and Frauds

Cyber attacks and fraud are quite common on a blockchain network and this is not because these do not have adequate security measures.

Instead, it is due to the fact that the developers cannot keep up with the pace at which the attackers find a solution to exploit the vulnerabilities in it.

Therefore, in spite of the fact that the blockchain technology ensures maintaining immutable records of every transaction, it is still not entirely resistant to cyber attacks and fraud.

Bad actors can easily find a way to manipulate the system exploiting the known vulnerabilities in the infrastructure of the blockchain system and they have been successful in getting through and disrupting the system.

There are number of ways, in which the attackers do so, some of which are:

• Exploitation of the code
• Stealing the private keys or personal digital signatures and
• Hacking the computer of an employee of an organization instead of the core servers.

You will find a lot of incidents happened in the past which raises the question regarding the overall security of the blockchain ecosystem.

Attack Methods and Solutions

The fraudsters threaten the blockchain networks in a number ways making people think whether or not the technology is inherently secure.

Well, the blockchain technology is incontrovertibly beneficial for the organizations but still it comes with some significant drawbacks that results in particular security issues.

It is better to know about these specific issues and the different methods in which the bad actors attack the system and take proper measures to overcome the challenges.

51% attacks:

This specific type of attack perhaps has the most devastating effect on the entire blockchain system.

Typically, transactions made on a blockchain are validated by the miners to ensure safety of the network and authenticity of the transactions.

A 51% attack is more likely to occur in the early stages of the chain when a malicious hacker has more than half of the entire hash rate and gains control of the whole system.

They can then amend the order of transactions and even stop these transactions from being confirmed.

Sometimes the hackers can even result in double spending by reversing a transaction that was completed previously.

The best ways to prevent a 51% attack is to:

• Improve the monitoring mechanisms of the mining pools
• Making sure that the hash rate of the network is at a constant high and
• Avoiding using The PoW or Proof of Work consensus mechanism.

Phishing attacks:

This is another specific type of attack on a blockchain network that is increasing everyday and has the potential to cause serious problems to the network used by individuals or organizations alike.

The main objective behind planning a phishing attack is to steal the credentials of the users.

This is usually achieved by sending emails to the owners of a wallet that look legitimate.

The users are asked to furnish the login details on the hyperlink attached with the email, which, needless to say, is fake.

This will give the hackers access to the credentials as well as other sensitive data and information about the users.

Such attacks are not only disastrous for the users but are also quite damaging for the entire blockchain network.

And, sometimes, the phishing attacks make the blockchain system susceptible to follow-up attacks.

In order to prevent phishing attacks, it is best to:

• Improve the security of the browser by installing a verified and reliable add-on which will notify you about the websites that are unsafe
• Improve the security of your device by installing a dependable malicious link detection software along with a reliable antivirus software
• Reconfirm with the sender of an email after receiving it by requesting for the login details perhaps
• Abstain from clicking on any link before reviewing it thoroughly and then type the address in your browser instead of clicking on the link for further checking
• Refrain from opening any Wi-Fi networks especially when you are using an electronic wallet to make banking transactions and
• Keep your system and software up to date.

Routing attacks:

The routing attack is another major concern for the security as well as privacy of the blockchain network.

Ideally, a massive amount of data is moved on a blockchain network and the hackers use the anonymity of the account while planning a routing attack to intercept the data being passed on to the internet service providers.

The participants of the blockchain network are usually unaware of these routing attacks because there is nothing unusual noticed during operation or data transmission.

Everything looks normal but actually the attack can cause an exposure of the confidential data frequently and may even take away money from the account without the knowledge of the users.

In order to prevent routing attacks, the best things to do are:

• Implementing a secure and reliable routing protocol that comes with a certificate
• Using data encryption strictly and always
• Changing the passwords on a regular basis and making sure that the password is strong and hard to guess by others and
• Educating you about the risks inherent with information security.

Blockchain endpoint susceptibilities:

Another major concern with relation to blockchain security is the vulnerability of the blockchain endpoints.

These endpoints of a blockchain network are where the users communicate with the blockchain.

It can be a computer or a mobile phone but both are susceptible to attacks by the hackers who can observe your behavior.

They target a few devices and steal the private key of the users.

In order to prevent blockchain endpoint vulnerabilities, you should:

• Not save the keys as text files on your computer or mobile phone
• Download and install reliable and functional antivirus software to protect your devices from being hacked and
• Review everything on a regular basis which includes your system with the time, the location, and access to your device.

Sybil attacks:

Finally, in a Sybil attack, the attackers typically generate a lot of network nodes, which, once again is needless to say are fake.

The hackers use these nodes to gain majority consensus which allows them to disrupt the transactions made on the blockchain.

In fact, going by its perspective, when a Sybil attack is made on a large scale by a hacker it typically becomes a 51% attack.

Therefore, the security measures to follow to prevent this type of attacks include all those used to prevent 51% attacks and some others such as:

• Using the right type of consensus algorithms
• Monitoring the behavior of the other nodes on a regular basis
• Checking in the nodes that there are only forwarding blocks from any particular user.

Well, all these are good ways to protect a blockchain algorithm from being attacked but remember these may not prevent the attacks completely. However, these will surely mitigate the issues.

Best Practices

Here are some best practices that will ensure blockchain security.

A few of these practices are meant for the enterprise blockchain applications but typically the best practices should consider every layer of the tech stack to ensure foolproof security.

In addition to that, these should help in managing permissions and governance of the network and therefore a special focus should be given on using both the traditional security controls as well as technology-exclusive controls.

Best practices for enterprises:

As for the enterprise blockchain applications, some of the best practices for maintaining the security of the solutions include and are not limited to ensuring:

• Better key management
• Better identity management
• Superior access management
• Better data privacy
• Smart contract security
• Secure communication and
• Proper transaction endorsement.

You may take help from experts to ensure that these are being done just the way it should be if you do not have a very competent IT team in your organization, which is quite strange by itself.

Best practices for developers:

If you are building a block solution you should also follow some best practices and tips. To start with, you should find proper answers to a few questions such as:

• What is the governance model for the members or the organizations participating in it?
• What type of data is to be stored in each of the blocks?
• What are the pertinent regulatory requirements?
• How exactly can you meet those regulatory requirements?
• How do you want to manage the details of identity?
• Will the block payloads be encrypted?
• How will you manage or revoke the keys?
• What type of disaster recovery plan do you want to have for the participants in the blockchain network?
• What minimal security posture do you want to ensure for the users to take part on your blockchain?
• What specific logic do you have to resolve block collisions on the blockchain?

When you have the answers to all these questions on your whitepaper, ensure that you build the blockchain on a secure and resilient infrastructure.

Best practices for administrators:

As an administrator of a business you will need to ensure that a proper blockchain network is designed in the first place considering the business objectives as well as the governance risks.

These risks should include everything from financial implications to compliance risks and reputational factors.

Since governance risks stem from the decentralized nature of the blockchain solutions, you should ensure a very strong control on the decision criteria, identity and data access management and the governing policies.

Create a proper blockchain security model and ensure that all necessary security measures are included in it and are in the proper place.

To implement this security model you will need to design a risk model first that can address governance, business, process, and technology risks.

Next, you must evaluate the threats to the blockchain network and build a threat model in accordance with it.

It is only after creating all these different models you will be able to define and design the security measures that will mitigate all risks and threats.

Best practices in general:

Whether it is for designing or simply using a blockchain network, these are some of the best practices that you should follow in general that will assure trust, privacy, and security of it. These are:

• Defining and enforcing endorsement agreements depending on the business contracts
• Using Identity and Access Management or IAM tools to controls data access on the blockchain
• Executing suitable tokens to authenticate, verify and authorize users on the blockchain
• Storing identity keys securely
• Using PAM or Privileged Access Management solutions for ensuring safe ledger entries based on apposite business logic
• Safeguarding API-based transactions by following API security best practices
• Using data classification approach to preserve data or info of the users
• Using technologies to protect privacy of sensitive information
• Using standard TLS or Transport Layer Security protocol instead of Secure Sockets Layer or SSL protocol for both internal and external communications
• Implementing multi-factor authentication always
• Maintaining a very strong cryptographic key management
• Leveraging HSM or Hardware Security Module
• Leveraging SIEM or Security Incident and Event Management
• Doing vulnerability assessment on a regular basis
• Ensuring VAPT or Vulnerability Assessment and Penetration Testing
• Patching all known security loopholes as soon as these are detected
• Getting a security certification recognized by the industry widely for the blockchain solution and
• Enforcing compliance.

Remember, following these steps will not take a lot of time and effort but it will surely give you a complete peace of mind.

Penetration Testing

Blockchain Vulnerability and Penetration Testing is a specific security assessment process.

This is ideally done by the security professionals as well as the ethical hackers.

It is done to test the strength and effectiveness of the security measures of the blockchain solution or application and discover the loopholes and vulnerabilities in it.

It also helps in identifying the errors in configuration of the solution.

Typically, blockchain penetration testing can be done in three different phases.

Phase 1:

This phase involves gathering information and threat modeling in order to analyze and understand the functional requirements of the blockchain solution. This stage includes:

• Understanding the architecture of the blockchain solution
• Finding the threat entry points
• Gathering data on the potential exploits that are available publicly
• Evaluating smart contract business logic
• Setting proper objectives to conduct security testing
• Designing a full test strategy
• Checking the compliance readiness
• Building a proper testing environment and
• Creating test data.

Phase 2:

This stage involves actual testing and discovery of the weak points.

The data you have acquired in the first phase will be required for it to determine the development level as per the industry guidelines.

This stage includes:

• Testing API security
• Functional testing
• Analyzing blockchain security both manually and automatically
• Blockchain dynamic and static testing
• Assessing network vulnerability
• Assessing application vulnerability
• Assessing blockchain integrity and
• Documenting all testing discoveries.

Phase 3:

This stage involves exploitation of the loopholes or weaknesses in the blockchain security found in the previous stage.

It is usually done manually on a frequent basis in order to find and purge the false positives.

This specific stage also involves retreating data from the target and ensuring perseverance. This stage includes:

• Verifying all security vulnerabilities and weaknesses
• Exploiting the same
• Blockchain network penetration testing
• Web application penetration testing
• Testing social engineering attacks and
• Reviewing and documenting discoveries.

Typically, when you conduct blockchain penetration testing in the right way you will get all necessary insights regarding the posture of the overall blockchain security and repair the potential weaknesses in it.

Securing Blockchain Networks

In order to ensure blockchain security, there are three specific ways you can do it and for that you may use any one of the reliable tools available on the internet.

Authentication and identification of participants:

First, you will need to ensure that every device and participant on the blockchain network goes through a strong identification and authentication process especially for those permissioned blockchain networks.

This part should not be skipped thinking that the identities of the participants on these networks are already known.

If you use a reliable tool for it you may even get help from the PKI or Public Key Infrastructure solutions to get the digital identities or certificates that will help a great deal in providing strong data encryption and authentication.

Few specific tools may also have an entirely separate process to identify and authenticate the human participants on the blockchain network such as SafeNet Authentication Service or SAS.

These are usually customized and fully automated services and are very secure.

Secured core blockchain technologies:

The basic blockchain security foundation of a network is actually the public key cryptography.

This ensures security by generating the crypto keys and using and storing them safely.

Cryptography is also used to sign smart contracts for proving their origin and it also secures the data stored both on the blockchain network and off it.

This ensures that all transactions made on it are confidential, which makes securing the crypto keys very important.

Secured blockchain communications:

Finally, you will need to ensure that the communications within the blockchain network are seamless and secure.

Once again, this will only happen when the crypto keys that are used in TLS and SSL network connections are stored safely.

This will ensure that the method followed for exchanging messages as well as authentication management is appropriate to ensure the integrity of all transactions made on the blockchain network.

Cryptography and Blockchain Security

The role of cryptography in ensuring blockchain security is immense because it relies heavily on it.

In fact, these cryptographic hashing functions are the fundamental aspect that ensures data security on the blockchain network.

Hashing, as you may know, is a process where a hash function or the algorithm receives data input and returns an output.

Here the input can be of any size but the output will have a fixed or a predictable size.

The resulting hash will be the same if the input does not change irrespective of the number of times the hash function is run.

However, the output will be entirely different when the input changes.

These outputs or hashes are used within the blockchain network as unique identifiers of the blocks.

The hash for each of these data blocks is produced in relation to the hash of the preceding block and when linked, this creates a chain of data blocks.

The type of the hash of the data block will depend on the data contained in that particular block.

This means that any changes made in the data will need changing the block hash as well.

Therefore, the block hash is dependent on two specific things namely:

• The data contained within the block and
• The hash of the earlier block.

Apart from guaranteeing blockchain security these hash identifiers also ensure immutability.

Cryptography also plays other significant roles in blockchain security apart from protecting the transaction records on the blockchain which includes:

• Ensuring security of the wallets and
• Allowing only the holder of the private key to access funds due to its asymmetric cryptography.

All the solutions built on a blockchain are offered multiple security measures but lack of governance may result in exploitable vulnerabilities.

The sooner the loopholes in blockchain security are identified the sooner these will be fixed to protect the blockchain solution from the hackers.

Also, cryptography, penetration testing, and blockchain security audits are some of the best practices that will make a blockchain solution immune to cyber attacks.

Conclusion

Blockchain security is a very important factor for any individual as well as for businesses to secure funds since it is prone to cyber attacks.

With your improved knowledge about it now through this article, you know its reasons and ways to do it.