The interest in blockchain technology has been growing at an exponential rate, which is evident in the rising investments of institutions in blockchain technology. At the same time, businesses and individuals must keep an eye on blockchain security best practices to avoid the risks of damage to their reputation and valuable blockchain assets. Blockchain presents different types of benefits, including decentralization, immutability, transparency, and cryptographic security. On top of it, blockchain is also a major component of the growth of web3 alongside other technologies such as AI, ML, augmented reality, and virtual reality. With the help of smart contracts, blockchain has extended beyond the use cases in cryptocurrencies and offers the advantages of creating decentralized applications.
The applications of blockchain technology have empowered developers to create innovative solutions such as NFTs, metaverse platforms, and DeFi apps. However, the growing popularity of blockchain has also invited attention to security issues. The burden of financial losses due to blockchain security incidents in 2022 amounted to more than $4 billion. Therefore, it is important to learn blockchain security top practices for ensuring effective safeguards against existing and emerging threats to blockchain security. Let us learn more about the best practices for ensuring blockchain security.
What are the Principles for Blockchain Security?
You can find effective ways to ensure blockchain security by learning about the security principles of blockchain. The best way to find answers to “What are the security principles of blockchain?” involves learning about blockchain technology. You can come across multiple guides on the internet that explain the fundamentals of blockchain technology. In simple words, blockchain technology is a distributed ledger that helps users and organizations store and process data in a completely decentralized manner. The blocks of transactions in the decentralized network are connected to the previous blocks with a cryptographic function. Therefore, it is practically impossible to modify transactions once they are registered on the blockchain network. The important concepts for privacy and security in blockchain draw attention towards immutability, transparency of transactions, decentralized access, and cryptographic security. These traits are the essential principles of blockchain security.
For example, immutability and cryptographic security ensure that it is impossible to make unauthorized modifications in transactions on blockchain networks. On top of it, the transparency of transactions also helps in monitoring everything that happens in a blockchain network through detailed audit trails. With all these traits, it is reasonable to expect that blockchain would be inherently secure. However, blockchain is also vulnerable to security concerns due to different factors. It is important to note that blockchain leverages decentralization for entrusting power in the hands of users. At the same time, it also puts the responsibility of blockchain security in the control of users. Therefore, blockchain security vulnerabilities can emerge due to the lapses on behalf of users. For example, users may give away their private keys in phishing attacks or lose their hardware wallets. On top of it, smart contracts are also a major component in blockchain applications and a prominent target for security vulnerabilities. For instance, hackers can exploit errors in the smart contract code to implement denial of service attacks or reentrancy attacks.
Excited to learn about the critical vulnerabilities and security risks in smart contract development, Enroll now in the Smart Contracts Security Course
Existing State of Blockchain Security
Blockchain security serves as a comprehensive risk management procedure that involves the use of cybersecurity frameworks, secure coding practices, and security testing methodologies. The primary objective of blockchain security revolves around ensuring safeguards against online fraud, security breaches, and different types of attacks.
The responses to “What are the security principles of blockchain?” draw the limelight on cryptography, consensus, and decentralization. However, blockchain solutions are vulnerable to different risks, with continuously increasing burden of the financial impact of blockchain security breaches. The global blockchain market could achieve a capitalization of almost $20 billion in 2024, thereby attracting more attackers. The review of prominent security breaches in the domain of blockchain in recent times can help in understanding the necessity of blockchain security. For example, the DAO hack led to loss of more than $60 million worth of Ether. In addition, blockchain bridges have also become susceptible to hacks, leading to another formidable security concern. As the number of organizations investing in blockchain solutions continues growing, it is important to understand the significance of blockchain security.
Build your identity as a certified blockchain expert with 101 Blockchains’ Blockchain Certifications designed to provide enhanced career prospects.
What are the Best Practices of Blockchain Security for Businesses?
The adoption of blockchain by different businesses presents a favorable trend for blockchain technology. However, security concerns affect the blockchain-based systems for business applications. The risks to blockchain security in business would create difficulties in establishing trust. Here are some of the most prominent best practices that businesses should follow to ensure security of blockchain solutions.
Prepare for Security in Future
The first thing businesses know about blockchain is the assurance of cryptographic security. Therefore, they are likely to assume that it is possible to use blockchain with personally identifiable information or PII. The problem in this case is that hackers could find different ways to break into the cryptographic algorithms safeguarding blockchains. Technological advancements such as quantum computing could create opportunities for hackers to compromise cryptographic keys. Businesses should follow the best practice of avoiding the use of personally identifiable information on blockchain networks. Another important addition among blockchain security best practices for businesses draws attention toward avoiding large files. Data on blockchain is replicated across different nodes or systems in the network. When data is stored on blockchain, it can increase the storage and compute costs. On top of it, large files are not secure on blockchain networks. Users can opt for pointers or links to large files that are stored on Google Cloud Platform or AWS Cloud. In addition, businesses can also include a hash, which can help verify whether the content of a file has been changed by comparing it with the same hashing algorithm.
Prefer Permissioned Blockchains
Public blockchains allow anyone to access information, add transactions, and read data on the blockchain. However, businesses need privacy and security in blockchain solutions as they cannot expose some of their data in public. In such cases, permissioned blockchain networks come into play and allow the storage and access of data within certain boundaries. Permissioned blockchains can enable storage, access, and use of data with the help of permissions or passwords. For example, Ethereum and Bitcoin are public blockchains. On the other hand, Hyperledger blockchain enables the creation of permissioned solutions for businesses. If you want to maintain privacy of your data, you should utilize a permissioned blockchain. Permissioned blockchains are also known as consortium blockchains and private blockchains.
Determine the Scalability and Performance Needs
Businesses can choose blockchain networks depending on their requirements and specific use cases. Blockchain developers and architects must look for tradeoffs and advantages of a network. Do you have to compromise with scalability to improve performance, or is it the other way around?
One of the notable mentions among blockchain security top practices draws attention toward the blockchain trilemma. Apart from scalability and performance, you have to focus on security. Therefore, it is important to choose blockchain networks that offer exclusive value advantages of security.
Use Governance Structures for Blockchain
The challenges with governance model of a blockchain can also create problems for businesses. Businesses can avoid security issues by defining the governance structure before they leverage a blockchain platform. You can safeguard a blockchain by choosing the right governance mechanism that helps in deciding how to add or remove users in an organization. The governance structure could also address the procedures for different possible situations and methods for coping with user interactions.
Want to explore an in-depth understanding of security threats in DeFi projects? Enroll now in DeFi Security Fundamentals Course
How Can Businesses Develop Secure Blockchain Solutions?
The best practices for blockchain security draw references towards secure development of blockchain solutions. You can address blockchain security vulnerabilities by following the best practices to create blockchain solutions. The foremost recommendation for businesses to create blockchain solutions is the use of a ‘security-by-design’ approach. Developers should ensure precise definitions and enforcement of endorsement agreements on the basis of business contracts. It is also important to pay attention to identity and access management controls for managing data…
