What are the real issues and vulnerabilities of blockchain? With the huge scope, potential, and use cases of blockchain, it is elementary that you are familiar with innovative technology and all the technicalities behind it.
This will allow you to use it as and when required for your beneficial reasons, personal, commercial, or otherwise.
However, apart from the benefits offered by blockchain, there are also some issues and vulnerabilities that you ought to know in order to have a complete and more comprehensive knowledge about the technology.
Such knowledge will help you to make the best use of this innovative technology to its fullest potential while at the same time be wary about the risks involved in it and take the necessary precautionary measures.
You will also know the specific reasons for these issues to exist and also the ways in which these can be addressed by competent IT professionals.
Along with that, you will also come to know about several other features and factors of the blockchain ecosystem that will make your knowledge much more comprehensive.
It is also required for those who are pursuing IT security and want to make an advanced career in it or any advanced education for that matter. Therefore, read this article in full and carefully to be aware of it all.
What are the Real Issues and Vulnerabilities of Blockchain?
The blockchain technology is comparatively new and it has proved its potential to transform the ways in which the businesses operate today.
One of the biggest and most significant developments in technology of the past decade happens to be blockchain.
It has also become the basic foundation of cyber security.
Today blockchain technology is used in almost every sphere of business and manufacturing and one of the most notable sectors that has benefited a great deal due to the use of blockchain technology is the supply chain industry.
In addition to that, this technology has also helped the health care, finance and banking, logistics, automobile and several other industries quite significantly.
However, in spite of its numerous applications, there are countless stories, new and old, of people losing money in the crypto space or being affected adversely in some way or the other by using blockchain technology.
It is primarily due to the compromises in the different components that make up the blockchain ecosystem.
Yes, the blockchain technology may be innovative and useful, but it is not completely invulnerable.
In fact, it has a number of known, as well as unknown, vulnerabilities, just as it is any kind of software.
Take Ethereum, for example. This has a virtual machine called the Ethereum Virtual Machine, commonly referred to as EVM.
This machine executes EVM byte code. The machine can also execute smart contracts in a sandboxed setting.
The specification of this virtual machine defines more than 140 different instructions that can be typically used by the programmers of smart contracts.
The EVM helps them a lot by providing a useful reference for all these instructions.
However, if the issues and vulnerabilities in blockchain are not resolved, such benefits will soon turn out to be a disaster.
Add to that, the decentralized applications, also known as dApps, have a number of real world cases.
These apps can also leverage vulnerable smart contracts.
This will result in funds to be stolen if there is any vulnerability in the blockchain ecosystem.
At this point it is worth noting that different types of vulnerabilities may exist not only in smart contracts but also in any component of the blockchain ecosystem.
Therefore, it is good to start gaining knowledge about the issues and vulnerabilities in the blockchain ecosystem by knowing the components that make it in the first place, which brings to the next segment of this article.
In fact, the attack surface and possibilities become bigger with the larger number of features offered by blockchain.
Here are some of the most common and major components of the blockchain ecosystem along with the specific vulnerabilities that these may contain.
A blockchain consists of ‘blocks,’ and hence the name, and each of these blocks contain the relevant info about a transaction.
Typically, the information consists of three basic pieces such as:
- All information related to a transaction such as the date, amount, and the time of a purchase
- All information regarding the identities of all the parties involved in that particular transaction and
- A hash or a unique algorithmic code that differentiates that particular block from all the others in the blockchain network.
Any new block is added to the chain whenever a new transaction is made at any point of time.
However, in order to get it added to the chain with the unique identification code the transaction needs to be validated before that, a process called mining in crypto.
The blockchain ecosystem also contains several other components.
For example, the Ethereum blockchain contains a core blockchain software referred to as the client software such as Parity or Go Ethereum.
In the blockchain network there are also a number of participants and each of them runs this particular client software.
They are often called the node.
These nodes monitor all transactions made on the blockchain and verify them before adding it to the blockchain as a new block.
Apart from that, there is a wallet in the blockchain system which can be employed either in the software or the hardware.
Sometimes the software wallet and the node may be tied together in the same software.
These smart contracts form the fundamental building blocks of the decentralized applications or dApps.
The dApps, on the other hand, are made up of a frontend app which can be a desktop application, mobile application, or a web application.
Apart from that, it may also consist of one or more smart contracts.
These smart contracts in the frontend app usually contain methods that allow it to call by sending a transaction to the address of it.
This helps in performing specific functions such as writing or reading data onto the blockchain.
And, the eCommerce sites that receive crypto payments such as Bitcoin also need a blockchain solution to perform.
It can be a solution created by themselves or any existing one.
In both the cases, the blockchain solution needs to use a blockchain node in order to accept crypto payments properly.
All these components mentioned above that make up a blockchain ecosystem add up to create a larger attack surface which makes the entire blockchain solution more vulnerable.
Growing Importance and Uses
Since then it has been growing in functionality, applications, and value.
The importance and use of blockchain technology is immense and therefore it is used in several different industries today.
The blocks that represent pieces of digital information and stored in the public database or the chain uses cryptography to link each other.
This prevents double spending or using the same currency to make two different transactions, which is the primary reason to use blockchain.
Today it is used in several other areas to make the record of any transaction public so that the individual users can sync their computers with a specific type of blockchain network and verify it.
This enhances security, prevents chances of frauds and hacks, and establishes the legitimacy of a transaction.
However, the cyber criminals still find out ways to get around this through the issues and vulnerabilities in the system.
17 Real Issues and Vulnerabilities
Here are some of the most pressing issues related to the blockchain ecosystem that makes it vulnerable to cyber attacks and hacks.
1. Vulnerable Endpoints:
The blockchain technology may be resistant to hacks virtually but the endpoints that make the blockchain are not so.
For example, if the amount is stored in a hot wallet or in any virtual savings account, these may not be as secure and hack-proof as the real blocks on the blockchain.
Also, several third-party vendors facilitate blockchain transactions which include smart contracts and the payment processors and platforms.
These vendors often have much weaker security systems on their websites and apps which may leave a door open for the hackers.
2. Scalability Problem:
The blockchain networks of today are the largest ever built and the rate at which it is gaining popularity and as the technology develops even further, the chains are going to get bigger.
This is something that is most worrying.
The primary reason behind such concerns of the experts is that these huge blockchain networks are usually untested and therefore as it continues to grow more and more additional issues and vulnerabilities may exist.
This will give the hackers even a better and easier opportunity to exploit them.
Apart from that, the larger the blockchain ecosystem grows the more will be the chances to make simple mistakes that will make the tech infrastructure that supports the blockchain more vulnerable.
3. Regulatory Issues:
The lack of a clear and proper regulatory standard is yet another significant security issue of the blockchain ecosystem.
This increases the chances of frauds and unfair practices.
No one knows which laws of which jurisdiction will apply to the smart contracts, transactions, agreements, and lawsuits.
Also, the little standardization in the blockchain world also gives the developers very little chance to benefit from the mistakes of others which makes things all the more challenging for them.
4. Inadequate Testing:
This is another significant issue of the blockchain ecosystem which makes it more vulnerable to attacks, now that the use of blockchain technology is not restricted to crypto trading.
With the increasing use of this technology in other fields, the codes used in the apps are often untested or inadequately tested.
What is even more worrying is that in most of the cases the codes in the apps are highly experimental.
This gives the hackers even a wider opening to get through and exploit the vulnerability.
5. Manipulation of the Consensus Mechanism:
Blockchain technology is typically based on consensus mechanisms such as PoW or Proof of Work consensus protocol and the PoS or Proof of Stake consensus algorithm with the former being more prevalent.
However, both of these consensus mechanisms are prone to manipulation and subject to attacks.
The blockchain networks that are based on the PoW consensus mechanism are known to 51% attacks wherein a hacker controls the major part of the computing resources available to the blockchain network.
The hacker discards the blocks mined by others to give priority to the blocks created by him.
This will result in double spending, which is the primary intention of the blockchain technology to prevent, though the hacker will not be able to make money out of thin air or fake transactions by this process.
However, these types of attacks on the blockchain networks are very costly due to high hashing rates and therefore are rare.
But then that does not take away the chances of such attacks. One possible way to prevent it is to conduct proper verification of the consensus mechanism.
6. Rudimentary Cryptosystem:
The cryptosystem itself can be a significant vulnerability of the blockchain ecosystem on the whole.
As you may know the blockchain wallets normally function with a pair of private and public keys for signature.
However, the public key algorithm that determines the ECDSA or the Elliptic Curve Digital Signature Algorithm is vulnerable to attacks and to reduce it a library such as Mbed TLS must be used to implement a side channel attack protection in the cryptosystem.
7. Inappropriate Blockchain Magic Value Substantiation:
The magic value of the blockchain network is used to identify the chain uniquely before binding any transaction to the identified chain.
There are several blockchain networks that come with multiple forks such as one or more test networks apart from the main network.
Sometimes this magic value is manipulated and is not substantiated properly and therefore the transaction added may not have the desired value attributable to the particular chain.
In absence of such checks, the blockchain is made vulnerable to attacks because the hacker may replay a transaction that has been originally made on another chain.
This will create transactions that are meant for some other chain.
8. Incorrect Nonce Validation:
Sometimes the nonce or ‘number used only once’ is verified or validated wrongly which, however, needs to be unique for every transaction made on a particular blockchain. This nonce enforces uniqueness when it is used by the nodes.
However, when this nonce is implemented poorly it can once again result in the transactions being replayed on the same chain.
Such vulnerabilities may also be exploited by the hackers to receive the transaction amount.
This process can be repeated over and over again by the hacker until the source wallet cannot perform any transaction anymore due to lack of funds.
One way to mitigate this issue is to verify every received transaction for its uniqueness before it is added to the chain.
9. Denial of Service:
PoW blockchain networks that have a block target which can be adjusted automatically may also be pretty vulnerable to a denial of service attack.
In such a situation, the block target may be reduced to zero if the minimum target is not defined since it will result in the underflow of the floating point which may not be caught.
This will make it literally impossible for the miners to mine new blocks and it will render the blockchain useless on the whole.
Also, there may be congestion in the underlying blockchain when some of the dApps become very popular.
One way to prevent the blockchain network from being congested is to use smart contracts. These contracts usually have a very high throughput.
10. Address and Public Key Mismatch:
Usually the address of the wallet helps in deriving the public key of the blockchain wallet.
However, there may be a few implementations that may trim this public key in order to derive the address.
This may result in a significant issue since the address will not match the particular key pair which is essential to make a valid transaction safely.
When several different key pairs exist within the same wallet address it will be easy to find another key pair by brute force that may control the target wallet in a more realistic amount of time according to the length of the address.
One way to prevent such things from happening is to make sure that every unique wallet address matches the single key pair.
This is one of the most common vulnerabilities of smart contracts. This is a complex subject and needs better understanding.
Such vulnerabilities happen and can be exploited by the hacker when a contract function, say F, which is meant to withdraw funds, calls a default function, say D, of another un-trusted contract synchronously.
Undeniably, D can call F all over again before F can update the state. In such a situation, the blockchain becomes vulnerable.
This usually is common when a malicious external contract is used which eventually results in withdrawal of more funds than it should be.
12. Arithmetic Issues:
A few specific smart contracts, Solidity for example, may not be able to capture overflow of integers by default.
If these are not caught, it will result in unusual behavior.
The unsigned integers that are usually represented in bits will produce a result that is greater or less than zero due to the issues in the arithmetic operation.
This may be exploited by the hackers.
One way to do away with this issue is to implement more secure functions from the library of an external smart contract or employ a language that comes with a protection against such overflows built in it.
13. Unprotected Self-destruct EVM Instruction:
If the EVM gives such unprotected instructions it will make the smart contract unusable.
It will usually send the balance of the contract to the address that is mentioned in the parameter.
Ideally, if a smart contract comes with self-destruction functionality then it is essential that you protect it with care and be cautious that it only allows the authorized users to call the code.
As a general rule of thumb, you should avoid using such contracts altogether but if you really cannot avoid it, you should be extremely careful.
14. Visibility Issues:
This is another issue that may cause some serious adverse effects. Typically, as a best practice, it is required to mark function visibility explicitly for all variables and functions.
Normally, this default visibility may be public for functions on specific smart contracts and if it is not marked clearly then it may be taken as a private function by a developer which is actually public.
This will cause unexpected behaviors, once again, and may allow the hacker to call these presumed private codes.
In the same way, the data written in the storage area of the EVM is also visible to the public since it is stored on the blockchain. When a call is made to a smart contract which may even include function arguments and is visible to anyone it will create a transaction.
Therefore, you are to make sure that any secret is not stored in the EVM storage area as clear text.
15. Weak Randomness:
Smart contracts face a hard time usually to generate random numbers but it is required and therefore developers are more often lured to use a chain data as a predictable source of randomness.
This chain data comprises a block number, a block timestamp, and a block hash.
The block miners can manipulate all these values and therefore it is not recommended to use these values to generate the random numbers.
This will result in poor usage of block hash making the blockchain more vulnerable.
The hackers can exploit such vulnerabilities which may allow them to withdraw all the money.
One likely solution to this issue is to utilize a secure random number generator such as RBGC or RANDAO for smart contracts.
16. Transaction Order Reliance:
Transaction order reliance on smart contracts may result in unfair remuneration.
This vulnerability is exploited by the attackers when a genuine miner sends the solution to the transaction pool and the attacker sees it and sends the same immediately but with a higher transaction fee paid for it.
In such a situation, the solution sent by the attacker will be selected due to the higher fee and it will be included in the block before that of the genuine miner.
Therefore, the attacker becomes the first one to solve the puzzle and will be entitled to win the reward irrespective of the unfair means.
In order to prevent such attacks, one of the best ways is to use a reliable commit-reveal commitment scheme. This will allow disclosing the solution by the players more securely.
17. A Few Other Issues and Vulnerabilities:
Here are some other issues and vulnerabilities of a blockchain that are also good to know.
- Security – Blockchain networks are as secure as the weakest link among the network of computers. This means that the hacker needs to access only that node that is easiest to get through to disrupt the privacy of the whole blockchain and get a fake transaction approved.
- Proof of Identity consensus algorithm – Blockchain networks are pretty democratic since they use voting methods to reach a consensus where every node in the network gets the right to vote. However, smaller blockchain networks may be manipulated or the minorities may be sidelined in such Proof of Identity consensus algorithms. A group of hackers will find it easier to get into a blockchain using multiple devices and buy more votes for them to win and get any transaction approved.
- Transparency – Too much transparency or integrity of the blockchain technology may also cause some issues because data of all people related to a transaction or a business will be public. This is not ideal for any commercial environment. Just as you will not want any business to know all your data, the businesses will not want it either because the competitors will come to know about their strategies, intellectual property, and business secrets.
- Energy use – Blockchain consumes a lot of energy in comparison to any other centralized system when it comes to transaction validation due to redundancy and a large number of nodes participating on a blockchain. This not only consumes a lot of electricity but also a lot of storage because each of these nodes processes and stores data that is equivalent to, if not more than the central body of any other system.
- Appreciating benefits – The end users of a blockchain find it very difficult to appreciate the benefits due to the complexities involved in it. Sometimes, due to these complexities, blockchain can be pretty slow and cumbersome.
- Vested interests – Few establishments, especially the banks, have a vested interest in this technology failing and wish that it disappears quietly. This is because traditional banks make a huge amount of money from the middle men. They have a huge lobbying power with the legislators and the governments and do everything that is possible to reduce the usefulness of blockchain and limit its availability, if not kill it completely.
- Lack of adoption – Crypto and blockchain still lack mass adoption due to the apprehensions people have on this unregulated, decentralized, and traceable nature of it. However, without any broad adoption, the blockchain ecosystem cannot work efficiently and survive.
- Skills gap – Blockchain is still an emerging technology and the marketplace is highly competitive. This needs a lot of skills to develop and that is what seems to be very short in supply. Unless there are more blockchain developers and engineers involved in it, this ecosystem will not develop as expected.
- Lack of trust – Lack of trust among the users of the blockchain is another significant issue that hinders its widespread implementation since it cuts in two ways. Organizations may not trust other parties on the network or the security aspect of the blockchain technology.
- Interoperability – With more organizations creating their own blockchain networks that do not work together it may result in issues with communication and interoperability which includes sharing, accessing, and seeing info across different blockchain networks.
However, in spite of all these issues and vulnerabilities, blockchain technology is highly likely to evolve in the following years because technology, as always, will find a way to circumvent the barriers created artificially.
Still, since the blockchain networks are not free of vulnerabilities, you should use a set of dedicated tools for general software analysis and static code analysis to detect simple issues automatically.
Moreover, software testing, thorough reviews of codes and third party security audits are good practices that will also help in maximizing the chances of detecting more compound vulnerabilities in the blockchain ecosystem.
Blockchain networks can have several security issues and other vulnerabilities that should be resolved as soon as these are detected.
However, for that you must know about them in the first place. Well, this article was just meant for that.