United States
Answer ... Blockchains are vulnerable to attacks where a single miner or mining pool controls more than half of the total hashing power of a proof-of-work network, also known as a 51% attack. Once the attack is successful, an attacker can cause significant network disruptions by excluding new transactions or modifying the order of transactions. A similar attack can occur on a blockchain running on a proof-of-stake network where the attacker has obtained a majority of the relevant voting stake.
Blockchains have historically been described as ‘immutable’ due to the high costs and amount of coordination required to amend the ledger. Immutability presents significant challenges where a bug in a smart contract exists and can be continuously exploited, or where an illicit transaction occurs that authorities wish to reverse, but cannot. Even if stolen funds are traceable to a certain public address using blockchain analytics tools, transactions are generally not reversible and there is often no on-chain mechanism to force an attacker to return funds.
Quantum computing may render existing encryption standards obsolete and threaten the security of non-quantum resistant blockchains. Quantum computers can be rented today and used to experiment with attack algorithms and attempts to break public key cryptography.
United States
Answer ... Many blockchains are hosted and governed by miners and node operators distributed across the globe. Often, no single person or entity controls a particular blockchain. As a result, public and permissionless blockchains are generally operationally resilient, due to the lack of a single point of failure, both geographically and politically. While it is not impossible to attack a blockchain network, the decentralised and distributed nature of many blockchain applications makes such attacks difficult or expensive.
Blockchains have the advantage of being tamper-proof due to the traceability and auditability of the blockchain’s ledger. This means data stored on a blockchain cannot be tampered with or altered without leaving traces or evidence that changes have occurred. These features may allow blockchain analytics companies to follow a trail of funds, determine sources of funds or identify abnormalities in transaction activity long after the events have occurred.
United States
Answer ... Because the consequences of a bug in the smart contract are so significant, permanent and irreversible, developers may want to consider launching code in a test environment before transitioning onto a public, permissionless blockchain. Developers should commission regular independent audits on their code and offer bug bounties, especially where large amounts of cryptocurrencies are at risk.
When sensitive data or personal data is involved, developers should consider keeping such data off-chain. Even if the sensitive or personal data is hashed or encrypted before being appended onto a blockchain, if the private key is leaked or exposed, there is often no mechanism to remove hashed or encrypted data. Developers should be aware of the risk that underlying data may one day be permanently exposed to the public due to advancements in quantum computing. Developers should therefore consider using quantum resistant algorithms.
Some developers may choose to build a kill switch or administrator key that provides the ability to stop a smart contract’s operations or halt network activity in the event of an emergency or cyberattack. This may lower one cybersecurity risk but may also create a new attack vector (ie, the kill switch or key holders).
Custodians or persons in control of large values of cryptocurrencies should consider using multi-signature wallets as an additional guard against the unauthorised transfer of their cryptocurrencies.