Since its birth in 2009, blockchain technology has experienced a huge rise in fame. However, the abrupt rise and fall of bitcoin and other cryptocurrencies, the crashes of blockchain technology, and other turmoil have severely damaged the trust of many investors in the blockchain. These scenarios make us wonder about blockchain technology risks.
There have been a lot of talks lately about the benefits of blockchain technology. All around you, people are raving about how secure, permanent, impenetrable, and anonymous Blockchain technology is. If it offers this much security, why have investors lost their money—not in dollars but in trillions of dollars—in the first place?
Before moving ahead, it should be made clear that this post is not designed to downplay the benefits of advanced blockchain technology, but rather to raise awareness so that you can exercise caution before simply following the herd.
What inspired the creation of Blockchain technology?
The whole story is about trust and feeling secure. The main idea behind blockchain technology is to keep sharing valuable data between people who don’t trust each other. Because it thinks that blockchain has complicated systems, tricky math, cutting-edge software, and other advanced technology that make it impossible for people to manipulate the information. But sometimes, not everything that shines is gold.
Principles of security behind Blockchain
Blockchain’s shared accounting ledger is its core principle. Multiple “nodes” (computers) throughout a network store identical copies of the ledger (chain). The network nodes check the validity of each and every transaction. The last link in the chain is formed when individual transaction packages are combined using “blocks.” This block-chain network is thought to be so safe that no one could change the whole thing.
Theoretically, what makes the system tamperproof are two things:
- Each block has its own fingerprint, or “hash”. To make it for the first time, you have to spend a lot of time and processing power. It’s a representation of each miner’s credibility.
- A tamper-proof consensus protocol wherein each block’s unique hash constitutes the complicated chain.
This means that before the nodes can add new blocks, an attacker must first create a new complex hash for each block in the ledger. Changing a block’s hash requires a number of steps that are extremely time-consuming and complicated.
In theory, it seems to be perfect. But theory is just theory. The reality of theory shows up in practice. Let’s take a look at the biggest blockchain money heists that have ever happened.
Blockchain Money Heists: Cases of Investors’ Deception
Since the practical blockchain example appears to be more focused on cryptocurrency, Let’s look at the history of the blockchain.
In nearly the past five years, victims of crypto scammers have lost over $20 billion. About $2.7 billion of the $7.7 billion lost in 2021 can be attributed to a new type of scam known as “rug pulls.” The OneCoin case, which cost investors $15 billion, the Thodex case, and many other crypto scams in the past have caused investors to lose billions of dollars.
Due to its uncontrolled nature, enterprises in the decentralized finance, or DeFi, area become attractive targets for hackers, con artists, and counterfeiters.
The largest blockchain money heist ever
Smaller-scale crypto-heists were common until 2019. However, a rise in high-profile hacking with estimated losses above $150 million was observed between 2020 and 2022.
The value of cryptocurrency assets lost to security concerns surged more than nine times between 2020 and 2021. This was one of the biggest cryptocurrency thefts in history. Only one person was involved, and the Ethereum-based DeFi app Poly Network was the target. After Poly Network pleaded with him, the unidentified hacker handed back 342 million dollars and said that he had carried out the hack “for fun.”
In just 2021, hackers stole cryptocurrency worth $4.3 billion. Around $1.4 billion in losses were allegedly caused by attacks that took advantage of DeFi protocols, and the remaining $2.3 billion was lost as a result of fraud.
The Crypto and DeFi hacks, Fraud and Scam report July 2022.
The truth about this theory is now revealed. The potential risks of using blockchain technology are much greater than previously thought.
Blockchain technology issues that pose risks
Since blockchain systems aren’t perfect in many ways, it’s unlikely that the technology will be widely used. In the following, we will discuss at least six problems with blockchain that are posing risks to businesses.
Private keys vulnerabilities
A private “key,” typically protected by a password, grants authorized individuals to access to a blockchain. Simple passwords can be broken into in the same way that any other computer system can. IT specialist James Risberg warns that the riskiest points of failure remain “reusing passwords, falling prey to phishing scams, sloppy website administrators, and negligent workers.”
51% attack chances
According to the McAfee Blockchain Threat Study, hackers can hijack the primary blockchain if they control more than 50 percent of the network’s computing power. “Majority” or “51 percent” attacks are more likely to work on smaller, less complicated blockchains, like those used to keep track of inventory or other important data.
Smart contracts risks
Smart contracts can be used to automate many blockchain-related tasks, but the security of these contracts is only as good as the programming used to protect them. If the code for the smart contract can be hacked, criminals can get into the whole blockchain and possibly steal or move funds.
In a study done by the National University of Singapore and University College London, they looked at 3,759 contracts and found that 3,686 of them could be hacked. This shows how dangerous it could be.
Malware can get into the transactions of an authorized user on the blockchain. This lets the virus spy on other transactions and steals passwords. GeorgeWaller, CEO of Blockchain safety says that one way to lower the risk of malware is to install “content agents” that check everything that goes into the blockchain and stop malware from getting in.
So blockchain technology is not the solution
To create trustworthy, decentralized networks, blockchain uses distributed ledger technology. It may appear to be secure, exclusive, democratic, and the nerd’s ideal, but it is not without flaws.
Wait until your medical records are kept in a blockchain-based hospital for you to fully appreciate the benefits of blockchain’s unmatched transparency.
At the moment, there are no laws that apply to all blockchains. This makes it impossible to grow without using up resources. A court will not even accept blockchain-stored data or proofs as valid evidence.
In a Proof of Work blockchain, energy savings are impossible. By moving from a centralized system to a blockchain, you will only be hurting the environment if your prior system was inefficient and wasteful.