8 blockchain security issues you are likely to encounter in 2023-24

| January 22, 2024

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Blockchain infrastructure stands as a pivotal technology in the Fourth Industrial Revolution, erasing the boundaries between physical and digital realms. It introduces innovative opportunities and disrupts established businesses by fostering decentralized digital transformation.

This decentralization is realized through establishing trust among parties and removing intermediaries, facilitating efficient data sharing and value exchange.

While commonly linked with cryptocurrencies like Bitcoin, blockchain’s applications extend beyond finance to encompass diverse business sectors such as agriculture, mining, manufacturing, energy, supply chains, and healthcare.

Despite utilizing security measures like cryptography, securing the extensive architecture of web3 blockchain and addressing cyber threats requires additional diligence.

Public vs private blockchain security

To further explore blockchain security, understanding the distinction between public and private blockchain security is essential. Blockchain networks can vary in terms of participation and data access, leading to the categorization of networks as Public and Private.

Public blockchain networks are open. They enable any user to join while preserving participant anonymity.

Private blockchain networks use identity verification for membership and access privileges. It exclusively allows known organizations to participate.

 

Why prioritize cybersecurity in blockchain?

The web3 blockchain cryptocurrency technology presents significant business opportunities. But, it also comes with notable risks. Cryptocurrencies, a key application of web3 blockchain, are increasingly being utilized in criminal activities such as ransomware, scams, and terrorism financing. On the other hand, it reached a market value of $14 billion in 2021—an alarming 79% increase from 2020.

Additionally, the adoption of blockchain and associated technologies such as hardware wallet for cryptocurrency introduces novel cybersecurity threats, each presenting unique security challenges. Consequently, cybersecurity should be a paramount consideration when embracing and utilizing blockchain.

Despite being grounded in established cryptographic technologies, blockchain is sometimes erroneously perceived as inherently secure. However, the cryptographic features it inherits are insufficient to withstand the full spectrum of cybersecurity threats.

Researchers have identified approximately 500 cybersecurity attacks, focusing solely on cryptocurrencies, resulting in losses of around $9 billion. Safeguarding against these attacks with the help of sophisticated wallets for cryptocurrency is particularly challenging due to blockchain’s decentralized and open nature.

The inherent characteristics of decentralization and openness increase operational complexity and limit the ability to achieve absolute control. Thus, a comprehensive assessment is imperative to guard against cybersecurity threats and associated vulnerabilities.

Blockchain security issues and solutions

Miners play a crucial role in advancing blockchain infrastructure by validating transactions. But a 51% attack poses a massive threat, particularly in the early stages of a web3 blockchain. This threat isn’t applicable to enterprise or private blockchains. In a 51% attack, malicious entities control over half of the hash rate, enabling them to manipulate transactions, disrupt confirmations, and even reverse completed transactions, leading to double-spending.

To mitigate 51% attacks: enhance monitoring of mining pools, ensure a higher hash rate, consider alternatives to proof-of-work (PoW) consensus procedures, lack of security vulnerability coverage, lack of code scanning and security testing.

In a Sybil attack, hackers create multiple counterfeit blockchain cryptocurrency network nodes to gain majority consensus and disrupt chain transactions, essentially resembling a 51% attack. To eliminate Sybil attacks: web3 blockchain should implement suitable consensus algorithms. Monitor nodes for suspicious behavior, particularly those forwarding blocks from a single user. While these measures may not entirely eliminate the risk, they render Sybil attacks impractical for hackers to execute.

Phishing Attacks

In a phishing attack, hackers aim to steal user credentials by sending seemingly legitimate emails to wallet key owners. These emails often contain fake hyperlinks prompting users to enter login details, posing risks to both users and the blockchain network. To prevent phishing attacks: Enhance browser security with verified add-ons or extensions that notify about unsafe sites. Bolster device security with malicious link detection and reliable antivirus software. Verify email requests for login details by confirming with support or partners. Exercise caution with links; instead of clicking, manually enter addresses into your browser’s private tab after thorough review. Plus, try to use a hardware wallet for cryptocurrency storage.

Private Keys

As previously highlighted, public-key cryptography is fundamental to blockchain technology. Mishandling or improperly implementing public-key cryptography can lead to severe security issues in blockchain infrastructure.

Inadequate key signing implementation, such as using the same key for multiple signings instead of a Merkle tree, may expose your private key to attackers. Possessing the private key grants control over all associated data in the blockchain, including cryptocurrency ownership. Although the likelihood of such incidents is low, using vulnerable code increases the risk. The primary concern lies in mishandling the private key, such as storing it on infected computers or public platforms. In 2020, approximately $300k worth of cryptocurrency was compromised when a user left their public key in Evernote.

Lack of Security Vulnerability Knowledge

Smart contracts are essentially coded agreements utilizing blockchain for keeping immutable records of transaction and ownership. In a real-world scenario, lending money involves periodic interest until the loan term concludes, at which point the principal is returned. This concept is coded, substituting cryptocurrency for traditional currency. The advantage is the absence of intermediaries like banks, and once the contract is established, it becomes immutable. However, poorly coded contracts can be vulnerable to exploitation. A notable instance was the DAO, where an attacker identified a flaw, resulting in the theft of $50 million worth of blockchain cryptocurrency.

Operational risks

Governance and Regulatory compliance problems are among the two major operational risks. Blockchain’s ambiguous governance systems complicate security matters. The absence of clear governance makes decision-making about the network’s direction and maintenance challenging, potentially resulting in conflicts and security risks. Regulatory compliance, especially with laws like Know Your Customer (KYC) and Anti-Money Laundering (AML), becomes crucial to prevent scams and protect users’ assets as Ethereum, Polygon blockchain gains popularity.

Despite the decentralized design of web3 blockchain, practical implementation often leans towards centralization. This means a limited group controls the majority of the network’s processing capacity, posing significant security concerns.

Other concerns :

Interoperability is another problem that exists in blockchain infrastructure. The ability of different web3 blockchains to communicate and share data is termed blockchain interoperability. Lack of interoperability, leading to fragmentation, can pose security risks by complicating the monitoring and verification of transactions across diverse blockchains. Scalability is a significant challenge for blockchain, particularly as its usage expands. The increasing demand for computing power and bandwidth with a growing user base may result in bottlenecks and network congestion.

Quantum computing, a new paradigm, raises concerns about the potential compromise of the encryption algorithms used in blockchain. This introduces a security risk, as it could expose blockchain technology to potential hacker attacks.

Conclusion

Preparing for the evolving landscape of digital protection is vital as blockchain cryptocurrency technology advances. To enhance blockchain security, individuals and groups can take various actions: Stay informed about new security tools and emerging threats. Establish transparent governance frameworks for swift decision-making and accountability. Invest in cutting-edge security tools such as encryption and multi-factor authentication. Regularly audit smart contracts and other blockchain components to identify and address vulnerabilities. Implement robust authentication and access control measures to safeguard private keys and prevent unauthorized access.

In conclusion, while blockchain has transformative potential across sectors, it introduces significant security risks. Proactive measures addressing these concerns are essential to ensure that blockchain technology remains a secure and reliable platform in the future of digital security.

 

FAQ

What are the security issues with blockchain?

One of the prominent security issues with web3 blockchain is sybil Attacks. A significant Sybil attack essentially equates to a 51% attack. To counter security concerns like Sybil attacks, numerous blockchain infrastructures employ proof-of-work and proof-of-stake algorithms. Although these algorithms don’t entirely eliminate the possibility of such attacks, they render them impractical for potential attackers.

What is the scope of blockchain in 2023?

A notable trend in 2023 is the increasing adoption of blockchain such as polygon blockchain in enterprise operations. The decentralized structure of web3 blockchains enhances security, transparency, and resilience against cyber threats. Consequently, more companies are anticipated to harness this technology for its advantages in the coming year.

How many blockchains are there 2023?

As of 2023, the market hosts more than 1,000 circulating blockchains, serving a diverse array of industries and applications.

What are the 4 major blockchains?

Diverse applications necessitate distinct web3 blockchain types. The primary classifications include public blockchains, private blockchains, consortium blockchains, and hybrid blockchains, each tailored to specific use cases.

How big is the blockchain market in 2024?

The entire blockchain market is estimated to be approximately $ 7.5 billion in the year 2022. 

What is the fastest blockchain 2023?

Currently, Coreum leads with a speed of 7,000 TPS, followed by Solana with over 4,000 TPS, and Aleph Zero impressively reaching 100,000 TPS. The speed, scalability, and efficiency of blockchain have emerged as crucial considerations for developers and businesses amid the industry’s expansion.

What happens to crypto in 2024?

The Bitcoin halving event in April 2024 signifies a unique event that occurs every four years. It results in a significant reduction in the rate of the cryptocurrency’s supply, as the reward for miners contributing a block to the Bitcoin blockchain is halved.

More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 

Staking-as-a-Service

Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture