The narrative around blockchain technology in 2009 was entirely different from what it is today. When first launched, blockchain was supposed to offer people a better way of transacting value. One where they did not rely on a central entity or a central server. While that still remains a major part of this technological sphere, we have witnessed many new additions.
Since Etheruem introduced support for smart contracts on blockchains, the use cases of distributed ledgers have stretched far beyond financial transactions. You can point at any major industry, and chances are, decentralization using blockchain technology has already made inroads into it. Supply chain, gaming, data storage, music, arts, food, healthcare, and the list goes on.
There are multiple reasons, but they all revolve around one: the security blockchain offers the data stored on it. Major firms such as IBM and Walmart and blockchain startups such as Constellation and IPFS are already implementing blockchain in different ways to secure the storage and exchange of data. In short, blockchain has become the epitome of data security.
Why so many hacks?
It’s a common question people new in the blockchain space ask. If blockchain and cryptocurrencies are so secure, why all the hacks? Why were billions worth of cryptocurrencies stolen in 2020?
New users are quick to conclude that flaws in cryptocurrencies and blockchains lead to these hacks.
In part, it’s not entirely their fault. News articles on the internet with misleading titles, such as “Billions were stolen in blockchain hacks last year,” play a lead role in shaping their opinion.
The news headline mentioned above makes little sense. Billions stolen in cryptocurrencies had little correlation with the hack of any blockchain network. The reason for the hack is entirely different. And we will delve into that after we dip our toes a little into the concept of how blockchains operate.
How do blockchains operate?
Blockchains are ledgers that do not rely on a central party to update records or store data. Instead, they depend on hundreds of network participants called nodes or validators. These nodes may not necessarily know each other, but they can coordinate through a blockchain consensus protocol to reach an agreement to approve and record only valid transactions. The records of the transactions are then updated on the personal storage of each of the nodes. This establishes decentralization by creating a decentralized network of nodes that operate a blockchain.
In the absence of a central entity or server, there is only one way to hack a blockchain: 51% attack. A 51% attack would either require a majority of the nodes to go rogue and coordinate the attack to write whatever data they want on the blockchain. Or, it would need hackers to remotely corrupt the systems of a majority of the nodes and operate it as per their will. Both tasks are very often infeasible unless, of course, a blockchain has only a countable few nodes.
Actual reasons for crypto thefts
There are several reasons why cryptocurrencies get stolen, and in the vast majority of cases, “a blockchain hack” is not the one. Most of these thefts occur due to three major reasons, as pointed out in a report by Atlast VPN:
- Breach of smart contracts on Ethereum: A minor flaw in the code of a smart contract can allow hackers to drain funds from the contract and into their blockchain wallets. And as these transactions are irreversible, there’s no way one could get the funds back.
- Hack of cryptocurrency exchanges: Blockchains try to solve the issues arising due to centralization. And when you put cryptocurrencies supported by decentralization models on centralized exchanges, you add a level of risk to the otherwise secure cryptos. As with centralized services, hackers can exploit a platform and steal funds from them. That’s exactly what led to the theft of millions worth of cryptos.
- Compromise of cryptocurrency wallets: Non-custodial cryptocurrency wallets do not have any central control. But in this case, hackers target users directly to attain their personal information and gain access to their crypto wallets. They then drain the funds out of the wallets. This, in fact, led to the theft of cryptos that were valued at over $3 billion when the report was published.
Hacks of blockchains do not make it to the list because it is nearly impossible to hack blockchains. This leaves the end-users on these blockchain networks the primary targets of hackers.
Users need to be more alert
We are slowly transitioning to Web3.0, which is a version of today’s internet but it follows the principles of decentralization. And while today, hackers can easily exploit central servers to steal information, data, and funds, it will not be possible on Web3.0. That’s because there will be no central servers hosting platforms and applications.
Everything will be based on top of the infrastructures driven by decentralization. When that happens, hackers will have to rely on exploiting the systems of end-users. Whether it be for stealing information or funds, hackers will try and crawl into the systems of end-users to extract what they need.
This calls for users to be more aware of their security as decentralization and Web3.0 become mainstream. One of the best ways to stay secure from hackers on Web3.0 is to use decentralized private networks (DPNs), which are decentralized versions of VPNs, such as that by Deeper Network.
For example, Deeper Network’s DPN works exactly like a VPN, but it operates on a decentralized network rather than a centralized one. The DPN routes the user’s traffic through an encrypted tunnel based on a blockchain, thus ensuring that no one can either track the user or exploit the server itself. Deeper Network’s hardware device called Deeper Connect is also a potential solution to secure one’s internet surfing on public and private networks.
Using DPNs and taking other security measures such as keeping private keys offline and storing passwords in a secure place can safeguard users against cyber threats that await on Web3.0.