Like any system or network, bitcoin and the blockchain have their vulnerabilities and are susceptible to cyberattacks. And in this post, we will examine some common cybersecurity issues regarding bitcoin and the blockchain and how to mitigate these attacks.
A report by the world economic forum in January of 2017 predicted that by 2025, blockchain would store 10% of the world’s GDP. This shows how blockchain is poised to help us shape the future of finance, technology, and governance.
These days, it is impossible to turn your favorite news network or blog without hearing about bitcoin or cryptocurrencies. One prominent reason why bitcoin is the talk of the town is because of its exponential price increase and many top billionaires saying it is the future. But what exactly are bitcoin and the blockchain, and what vulnerabilities do they have?
Let’s dive into them.
What Are Blockchain and Crypto?
A blockchain is a decentralized and distributed ledger that is cryptographically protected that secures online transactions. On the other hand, cryptocurrency is a digital asset or money that runs on the blockchain network.
In simple terms, blockchain is the operating system that runs numerous applications, with one of the most common applications being cryptocurrencies.
Note: In this post, we will use bitcoin to represent most cryptocurrencies. However, the attacks that affect bitcoin equally affect other cryptocurrencies too.
Types Of Cybersecurity Threats On Cryptocurrency And How To Prevent Them?
1) Dusting Attack
Before we dive into what a dusting attack is, I will explain the concept of anonymity on the blockchain.
As stated earlier, bitcoin is a decentralized public network, and due to this feature, anyone can join the network anonymously and set up a wallet. However, each person on the network is not entirely anonymous because each transaction made on the blockchain network is documented on a public record. This record is accessible to anyone on the blockchain, and people can see the wallets involved in making and receiving transactions; therefore, bitcoin isn’t fully anonymous but pseudonymous.
So, what is a dusting attack?
A dusting attack is a tactic used by hackers to unmask the identities of cryptocurrency wallet holders. They do this by analyzing transactions on the blockchain network and then sending dust transactions to the users’ wallets.
But what is dust?
Dust is a tiny amount of any cryptocurrency. For example, with bitcoin, the smallest unit of bitcoin is a satoshi, which is equal to 0.00000001 BTC. So, the dust of BTC would be a couple of hundred satoshis. Usually, this dust is so tiny that you cannot spend it because they are below the transaction fees required for transactions. And sometimes, it is so tiny that you wouldn’t even notice it been added to your account.
It is important to note that each cryptocurrency wallet is made of different addresses, and for you to make a transaction, your wallet will sum up the number of different addresses with a positive balance and then make that transaction.
So, what happens is that these hackers send out the dust to many addresses, which they gather from the blockchain. They then track these funds, and by using a tactic referred to as combined analysis, they can identify the addresses that come from a common wallet.
Once they can identify these addresses, they can unmask the identity behind these wallets, which could be a person or a company. If they can unmask the identity behind these wallets, they can launch cyber-extortion threats and elaborate phishing attacks.
How do you prevent a dusting attack?
The first step to preventing a dusting attack is to identify them. If you open your wallet and you realize that someone has sent you a minuscule amount of bitcoin or satoshi, you want to be suspicious.
The first way to mitigate this dust attack is to ensure that you do not send any amount of bitcoin to anyone. Because these hackers can track the movement of the dust they send, and through this, they can identify the wallets and unmask the owners.
Then, the next step to take to mitigate these dust attacks is to generate a new address each time you want to make a transaction to prevent you from sending the dust.
It is important to note that dust attacks aren’t only limited to bitcoin, they can target other cryptocurrencies too.
2) Sybil Attack
The name Sybil attack was gotten from a woman named Shirley Mason whose life was portrayed as someone with multiple personality disorders in a book named Sybil, published in the 1970s.
This attack involves an attacker creating multiple accounts or nodes with various identities, intending to take over a network. They take over the network by outvoting other nodes on the network. Therefore, they control transactions in that network.
One main disadvantage of Sybil attacks is, they can lead to a 51% attack. With bitcoin, certain algorithms ensure that anyone that wants to spend their bitcoin has bitcoin to spend. So, before any transaction is processed, it needs to be validated by a majority of miners across the globe.
So, assuming a group of attackers or an attacker control more than 50% of a network’s mining computer power. With this much control, they can validate any transaction they want. Or they can prevent any new transaction from been validated. This can lead to double spending. Double-spending means is that these hackers can reserve any transaction they have completed, hence they can spend their bitcoin twice or more.
However, it is important to note that these attackers wouldn’t be able to alter old blocks, neither will they be able to create new coins. They can only validate and nullify transactions.
To mitigate these attacks, many blockchains use three different consensuses. These include proof of stake, proof of work, and delegated proof of stake. These consensus algorithms do not prevent Sybil attacks; however, they make it difficult and almost impractical for these hackers to launch a Sybil attack.
3) Bitcoin Miner Malware
Due to the limited number of bitcoins, each mined bitcoin makes the mining process more difficult. This means miners will need more electrical power to run and cool their mining machines or computers.
Due to the high operational cost of mining bitcoin (usually with electricity), miners borrow resources to mine more bitcoins. Miners can illegally borrow resources by spreading a cryptocurrency mining malware botnet to individuals across the globe. Through this, they hijack and use the computer resources of the victims to mine more bitcoin.
Even though most of these mining malware botnets might not take any personal information, they make the infected device slow.
An example was in 2019 when miners used a mining botnet called Smominru to hijack 500,000 computing devices, forcing those devices to mine Monero coins without the device owner’s consent.
One way you can prevent your computer from been infected with these miner malware botnets is to use anti-malware software. ‘
4) Transfer Trojans
These attacks involve hackers infecting computers or devices with cryptocurrency trojans that replace intended destination wallet addresses with the attacker’s wallet addresses. This means that these transfer trojans will monitor your device in search of any recipient wallet address you have stored on your device. These trojans then replace these wallet addresses with the attacker’s wallet address, so whenever you make transactions thinking you are sending it to an intended recipient, the funds would instead end up in the attacker’s wallet.
One way to prevent these attacks is to install anti-virus software on your device. Also, ensure that you double-check that the address you are sending to is the actual address of the intended recipient.
Before you use any online cryptocurrency wallet, we highly recommend you do a background search to determine that the programmers use SDL(Secure Development Lifecycle) to minimize bugs. The reason being, most hackers can discover bugs in crypto software, and they can manipulate cryptocurrency wallet software to steal vital information or even transfer cryptocurrencies from various account holders using that wallet software.
Also, we recommend you use a hardware wallet to store your private keys. These hardware wallets are physical devices that store your private keys, making them inaccessible to hackers. These hardware wallets store your cryptocurrencies on a physical device offline, making it highly impossible for someone to hack these devices.
It is important to note that the FBI or any security agency might not help you recover any lost cryptocurrencies during an attack, So you must take the above precautions to avoid falling victim to any cryptocurrency cyberattack.
As promising as blockchain and cryptocurrencies are, they come with their vulnerabilities, which need to be avoided. We hope you found this post helpful and have gained an idea of some of the most commons ways hackers attack cryptocurrencies and how you can mitigate these attacks. Please share it with your friends and family to educate them on how they can protect themselves from these attacks.