It’s no secret now that blockchain is a potential game changer in financial services and other industries. And you don’t need to look far to find examples of blockchain in use—from commodities markets in financial services to the supply chain in consumer retailing. Some even see blockchain as a “foundational” technology that, like the Internet, is set to disrupt, enable and change business processing as we know it.
To date, much of the frenzy around blockchain—which, for the purposes of this article, includes virtual currency platforms and Distributed Ledger Technologies (DLT)—has centered on its vast, transformative potential across entire industries. Organizations have focused squarely on “how” they can use blockchain for business. Yet, as the technology becomes more widely used and as cyber threats rapidly grow in number and sophistication, businesses should also be asking, “Is blockchain secure and resilient enough?”
Read our full report on making blockchain safer.
Simply put, it can be, but not right out of the box. There is a common misconception that blockchain is inherently secure because its principles are founded on cryptography and immutability. It is not, and even a small oversight can have a significant impact.
What Could Go Wrong?
Just last year, $50 million in assets were stolen from a venture capital fund that used blockchain. A vulnerability in the software allowed funds to be siphoned from people’s accounts before the discrepancy was noticed.
In another incident, hackers breached a Hong Kong-based virtual currency exchange and stole millions of dollars in Bitcoin from customer accounts. The breach happened despite a number of security measures that were taken to prevent such attacks.
And very recently, $9 million of cryptocurrency was stolen from another Initial Coin Offering (ICO), now a very popular means of funding which may disrupt the venture capital industry.
Add to these examples the fact that a large number of blockchain implementations are a significant departure from the well understood, fully decentralized, publicly accessible distributed network that is Bitcoin, the most popular blockchain implementation to date.
All of this illustrates the need for blockchain users to take a more comprehensive view of the platform’s risks, as the technology is here to stay and its adoption will only increase.
Some of those risks include:
Cryptographic key theft. The cryptographic private key to a blockchain network is like the key to a bank safe. An attacker could gain access to one of these private keys and make fraudulent transactions, including fund withdrawals.
Consensus overrides. Blockchain networks are powerful because they are meant to use consensus-driven decision making rather than rely on one centralized entity. A large group of attackers could access the platform and create a fake “consensus” among users on a particular transaction that only benefits themselves.
Anonymity. Members of a public blockchain can hide their identity, making it difficult to find those transacting on it, including any malicious attackers.
Poor implementation. Blockchain is still in its infancy, and, as with any emerging technology, lack of rigor can create vulnerabilities in the implementation, particularly in the software code (e.g., smart contracts) that services the blockchain. Since blockchain is meant to hold value or currency in a digital format, the software around the blockchain provides an attractive attack surface for hackers.
How can Blockchain Be Made More Secure and Resilient?
The underlying foundation and architecture of blockchain have been repeatedly examined by industry participants. These are not fundamentally flawed, but, there are lessons to be learned from known blockchain incidents as well as those from other traditional and emerging technologies to make sure your blockchain solution is secure and resilient. The following framework, with sample practices, can help accomplish this, for blockchain and other existing technologies:
|Framework category||Sample leading practices|
|Cryptography, key management and tokenization|| |
Consider using cold storage (i.e., no access to the Internet) for private keys that are not required for day-to-day transactions.
Ensure production private keys are not used or accessed during testing.
Maintain detailed access logs for all those with access to private keys, including any attempts to read private keys.
Consider using a multi-signature format to prevent inappropriate or unauthorized use of private keys.
|Chain permissions management and privacy|| |
Ensure all users of the blockchain network (particularly for a private chain) have proper security measures to prevent unauthorized transactions.
Ensure there is the ability to trace encrypted addresses to identify the actual user.
|Consensus mechanism and network management|| |
Ensure blockchain network nodes have the configurable ability to halt broadcast or acceptance of data from other nodes during incidents.
Identify unique metadata to include during handshakes to avoid consensus with compromised or incompatible nodes.
|Data management and segregation (on-chain and off-chain)|| |
Establish rules for “off chain” or separate transactions, such as when and where they can be made.
Ensure metadata included in blockchain transactions is encrypted as required and only accessible to appropriate participants.
|Governance, risk, and compliance|| |
Ensure governance model for hard forks (and other Low Frequency High Impact – LFHI scenarios) are agreed ahead of time.
Following is an illustration of the full framework.
Steering Blockchain in the Right Direction
Blockchain has clearly created intense interest. As more implementations move from proof of concept to production, and as more we believe that security and resilience will start to steer use cases and even influence adoption. By analyzing lessons learned from recent examples of blockchain-related incidents and by recasting decades of prior technology delivery experience, organizations can be better equipped to implement secure and resilient solutions around blockchain.
Read our full report on making blockchain safer.
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