Blockchain Security Architecture, Types and Challenges

Blockchain security is the term for an all-encompassing risk management system that lowers the risks of fraud and assaults while using blockchain networks by utilizing cybersecurity best practices, technologies, and principles. It is intended to reduce danger, ward off malevolent assaults, and stop illegal entry.

Why Blockchain Security is Needed

Blockchain technology is vulnerable to fraud and hacks despite its security. The claim that blockchain technology is secure is untrue. The need for better blockchain security is highlighted by the $40.9 billion routed to criminal bitcoin accounts in 2024. Undetected activity brings the 2024 amount to $51.3 billion, demonstrating that cybercrime has grown. Strong blockchain security is more important than ever as the attack surface grows along with the decentralized infrastructure and blockchain usage.

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Blockchain Security Architecture

How Blockchains are Secured (Intrinsic Features)

Several blockchain features boost security:

• Cryptography: Every transaction on the blockchain is secured with cryptographic principles, ensuring data integrity and authentication. Public Key Infrastructure (PKI) grants users a public key to receive assets and a private key to safeguard them. Blocks are connected in a cryptographic chain, making tampering nearly impossible.
• Decentralization: Blockchains operate across a distributed network of computers called nodes, rather than a centralized server. This distributed nature means that if a node or group of nodes is compromised, the entire system remains largely unaffected, as there is no single point of failure.
• Consensus Mechanisms: PoW and PoS algorithms check transactions before adding blocks. The Sybil Attack is prohibited because miners and stakers are paid for safeguarding the network, making it computationally infeasible for one attacker to control most nodes.
• Immutability: Once added and approved, block content cannot be changed. This guarantees that transaction records will always be preserved.
• Transparency: Since a lot of blockchains are public ledgers, anybody can see any transaction or modification, making it simple to identify criminal conduct.

Security Layers:

• Data Layer: Focuses on transaction protocols, data structures, and cryptography (public key algorithms, hashing).
• Network Layer: Oversees node validation and the peer-to-peer network to guarantee that only reliable nodes take part.
• Consensus Layer: Verify transactions before adding them to the ledger using Proof-of-Work or Proof-of-Stake.
• Application Layer: where consumers engage with the blockchain via apps, which frequently include smart contracts for improved security and access control.
• Optional Layers:For more precise access control and security, other layers, such as smart contracts, can be implemented.

Key Security Components:

• Cryptographic algorithms: Network and data security.
• Consensus Protocols: Maintain node blockchain state consensus.
• Key and Identity Management: Safely keeping track of public and private keys for transaction signing and user authentication.
• Network architecture is the process of creating a strong, attack-resistant network topology.
• Smart Contract Security: Making sure there are no exploitable flaws in smart contracts.

How Security Differs by Blockchain Types

Blockchain networks differ in who can participate and access data, leading to different security models:

Public blockchains are permissionless networks where anyone can validate transactions. Developers regularly examine their open-source code, which improves security but lets hackers find holes. They use computers with internet access to reach a consensus. Although immutability and great decentralization make data on public blockchains secure, privacy issues may arise because transactions may be read by anybody and users are not necessarily verified.

Private Blockchains: More centralized, these networks are exclusive, permissioned, and have restricted access. The operational entity is solely responsible for securing a private blockchain. By using “selective endorsement,” wherein only individuals with privileged access can keep the ledger up to date and known users validate transactions, they can reach consensus. Their centralized design introduces a single point of failure and the potential for shutdown or manipulation, even though they are typically quicker and more effective because they require less computational effort. Because private blockchains depend on outside parties and frequently have smaller networks that permit data tampering, they are more vulnerable to hacking. 51% attacks cannot affect them.

Hybrid Blockchains: These combine aspects of both private and public blockchains, leveraging their advantages and can be interoperable.

Challenges in Securing Blockchains

There are numerous important obstacles to securing blockchain systems.

• Pace of Innovation: Exploitable gaps arise because new protocols, functionalities, and use cases appear more quickly than security tools can be created and carefully tested.
• Permissionless nature: Scams spread quickly because low barriers to entry enable bad actors to launch coins, install contracts, or engage with protocols at scale.
• Cross-chain Activity: With the current infrastructure, it is challenging to monitor and secure cross-chain asset flows due to fragmented insight into transactions.
• Real-time Detection Ambiguity: It might be challenging to differentiate between harmful and benign activities before harm is done because legitimate arbitrage techniques and coordinated exploits can appear identical on the chain.
• User Verification (for larger networks): In a large blockchain network, millions of users cannot be verified.
• Centralized Control Risk: If a centralized strategy is employed, an administrator may seize control of the entire network and engage in illicit mining for their benefit.
• Insufficient Testing: As blockchain technology grows beyond cryptocurrencies, testers can fail to thoroughly inspect networks, creating openings for hackers to take advantage of.

Common Types of Blockchain

Attacks and Threats, Instead of attacking the core blockchain infrastructure, threats target on-chain applications like DeFi protocols, bridges, and phishing tokens.

• Smart Contract Exploits: Millions of locked assets can be exposed due to flaws in self-executing code. Attackers take use of reentrancy vulnerabilities, logical errors, or unmonitored access controls. Between January and November of 2024, smart contract flaws and code exploits were responsible for about 8.5% of the money that was taken.
• Oracle manipulation: When data inputs fed into smart contracts via oracles are attacked or corrupted, flawed logic can be triggered, giving attackers the ability to manipulate asset prices or start liquidation cascades.
• Bridge Attacks: Because of intricate smart contracts and custodial procedures, cross-chain bridges which transfer assets between blockchains are particularly vulnerable to attacks. By permitting the minting or issuance of unbacked wrapped tokens, a single vulnerability can result in enormous losses.
• Rug Pull Schemes: Social attacks known as “rug pull schemes” occur when developers suddenly stop funding a project or remove liquidity after it has drawn investment, leaving users with tokens that are worthless. The author cancelled 94% of pump-and-dump DEX pools in 2024 and found rug pull patterns in 3.59% of released coins.
• Phishing Attacks and Social Engineering: Attackers utilize bogus apps, airdrops, and accounts to steal private keys or sign fraudulent transactions. Cryptocurrencies lost $10–12.4 billion to scams in 2024.
• Routing attacks: Without the blockchain participants’ knowledge, hackers intercept data being sent to internet service providers and take private information or money.
• Sybil attacks: In order to overload the network and maybe cause a system crash or acquire an excessive amount of power, like 51% control, hackers fabricate a huge number of phoney network identities.
• 51% Attacks: A miner or group of miners can take over the ledger and alter transactions if they acquire more than 50% of the mining power on a blockchain network. This is not a problem with private blockchains.
• Eclipse Attack: Hackers create clone nodes, disguising the real ones and transmitting phoney ones.
• Finney Attack: A hacker conceals the original block and broadcasts a phoney one, completing a transaction. The transaction from the original block is then completed, resulting in a double expenditure.
• Attack Wallet: To carry out pointless transactions, hackers target users’ wallets.

Role of Blockchain Analytics and Best Practices for Prevention

Safe blockchain adoption and user confidence are made possible by proactive, data-driven security measures. Gaining insight into on-chain data is the first step in preventing attacks.

• Blockchain Analytics: Through real-time monitoring and transaction analysis, tools assist security teams in seeing warning signs early. The following are important elements:
  • Address labelling: Teams may quickly evaluate security risk by labelling wallets with known associations, such frauds and mixers.
  • Creating and maintaining attribution databases helps track finances and behavior more quickly and accurately.
  • Cross-chain visibility: Analytics platforms that track activity across chains are essential for detecting exploits that span multiple ecosystems.
• Code Audits and Testing: Regular code reviews and smart contract testing (simulations and fuzz testing) can catch vulnerabilities before deployment.
• To contain and recover from active attacks, incident response must be rapid and data-driven.
• Proactive Defense Solutions: Chainalysis Hexagate checks transaction intent and on-chain activity in real time to help protocols, bridges, dApps, and exchanges spot and halt hazardous transactions. It offers real-time notifications, customized Web3 security, preventative attack prevention, and smooth integration.

Best Practices for User and Enterprise Security

• Use of Cold Wallet: Users can protect their private keys because Cold Wallets don’t connect to the Internet. The wallet is not vulnerable to online attacks.
• Avoid public Wi-Fi networks because hackers often try to break in. Public wifi networks should be avoided because hackers can use malware to steal important data.
• It proposes strong passwords with letters, numbers, and special characters. Changing passwords on a regular basis is recommended.
• Security of personal devices: Personal gadgets should be modern. To defend against virus attacks, the most recent antivirus software should be installed, and the patches should be updated.
• Blockchain Penetration Testing: To evaluate the security of blockchain networks and identify any flaws, those who build them should have penetration testing conducted by an ethical hacker.
• Secure keys: Users are responsible for keeping keys secure. Use of robust cryptographic keys is advised. Keys should not be shared by users.
• Internal protection of sensitive data transfers and currencies depends on access controls and validating user-node communication in both public and private networks. This involves choosing whether or not to encrypt block payloads and managing and rescinding users’ private and public keys.
• Governance and Risk Management: If the worst happens, think about your disaster recovery plan for the blockchain participants. Routine risk evaluations can reveal major chain weaknesses. Blockchains must continually comply with privacy and cybersecurity laws, standards, and other country-specific regulations.
• Consider relevant regulatory requirements.
• Make sure a robust, secure infrastructure is used to implement private blockchains.
• Identify blockchain-specific security controls, standard security controls, and business controls, and create a risk model that takes into account business, governance, technological, and process concerns.

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