Top 5 Enterprise Blockchain Security Challenges

Blockchain technology was initially designed to cater to a retail audience. Bitcoin was intended to allow users to “be their own bank,” and smart contract platforms built on this concept to build increasingly complex decentralized applications.

Nevertheless, in recent years, there has been significant interest from enterprises looking to leverage the technology for their own purposes. Institutional DeFi is one example, but companies are also looking to use the blockchain to track supply chains or implement real-world asset (RWA) tokenization.

However, enterprise use of blockchain comes with its risks. These are 5 of the biggest security challenges that enterprises must face and overcome to successfully and securely implement blockchain-based solutions.

1. Access Control and Identity Management

Blockchains like Bitcoin and Ethereum are designed to be publicly accessible networks where the content of the digital ledger is visible to everyone, and anyone can perform transactions. In these environments, access and permissions are managed at the level of individual blockchain accounts.

Enterprise applications of blockchain technology are often built using private ledgers accessible only to authorized parties. These systems permit more fine-grained control over the data that a user can see and the actions that they can take on the blockchain. This is especially important if a ledger might contain sensitive business information or customer data.

In these scenarios, an enterprise must implement access management to control access to the blockchain platform and its capabilities. Ideally, access to the blockchain should be managed on an as-needed basis, with accounts protected using multi-factor authentication (MFA).

2. Smart Contract Security

Smart contracts dramatically expand the capabilities of blockchain platforms by allowing custom code to run on the blockchain. Many key blockchain use cases, such as Decentralized Finance (DeFi) and RWA tokenization, are built using smart contracts.

However, smart contracts can contain vulnerabilities and other bugs that negatively impact their operations. For DeFi and other high-value smart contract-based projects, an exploited vulnerability could lead to an expensive and damaging security incident.

Managing smart contract security risks requires applying traditional application security (AppSec) best practices to on-smart contracts. All code should undergo comprehensive security audits before being deployed on-chain. 

Testing should also be performed regularly and ongoing to address overlooked vulnerabilities before they can be exploited by an attacker.

3. Private Key Management

Access to blockchain accounts is managed using private keys. When creating an account, the user generates a random private key and derives the public key and account address from it. Every transaction performed by that account is digitally signed using that private key, allowing its authenticity to be verified by anyone.

Since private keys are the root of trust in blockchain environments, securing them is vitally important for both retail and enterprise applications of blockchain technology. A stolen private key could allow an attacker to perform malicious transactions using the compromised account, while a lost private key could result in permanent loss of access to an account, the cryptocurrency it contains, and any privileges assigned to that account.

Enterprise blockchain users should implement private key security best practices, such as using multi-signature wallets and hardware wallets. Additionally, enterprises might consider employing account abstraction to create smart contract wallets that offer more flexible authentication options and stronger security controls.

4. Network and Consensus Attacks

Blockchains are designed as distributed and decentralized systems. Blockchain consensus algorithms establish the official version of the blockchain’s digital ledger and help protect against malicious modifications to its contents.

With regard to blockchain consensus, the two main security concerns that enterprises should keep in mind are algorithmic security and 51% attacks. Even if a blockchain uses a secure consensus algorithm, it may be vulnerable to 51% attacks. While this may not be a concern for large networks like Bitcoin and Ethereum, smaller, private blockchains may lack the validators required to protect them from attack.

Enterprises can manage this risk by selecting a secure consensus algorithm and setting up a diverse, distributed, and robust pool of validators for private blockchains. Additional controls could include using access controls or monitoring to identify malicious validators or occasionally recording state checkpoints (such as a block hash) to another, larger network to increase the difficulty of rewriting the network’s history.

5. Regulatory Compliance and Data Privacy

Enterprises are subject to various regulations. While crypto regulation is still unclear and evolving in many jurisdictions, other laws impact enterprise applications of blockchain technology.

For example, the General Data Protection Regulation (GDPR) defines data security requirements, restrictions on cross-border transfers, and the right to deletion for EU citizens’ data. Many of these requirements are largely incompatible with a transparent, global, and immutable digital ledger.

Enterprises looking to adopt blockchain technology must be aware of their regulatory responsibilities and implement controls to ensure compliance within their blockchain-based solutions. For example, the use of zero-knowledge proofs (ZKPs) to securely summarize data on-chain without exposing the data on the digital ledger is one option to bridge the gap between blockchain technology and GDPR requirements.

The Future of Enterprise Blockchain

Blockchain technology has numerous potential benefits for enterprises. The rapid rise in institutional DeFi is one clear example of this, as traditional financial institutions take advantage of the blockchain to perform rapid cross-border transfers or to offer a wider range of products and services to a more global audience.

However, security and compliance are a major stumbling block in the path of widespread adoption of blockchain technology. The industry has a reputation for frequent, large-scale hacks that it needs to overcome before it becomes attractive to many businesses. Additionally, enterprises must adapt to and overcome the significant differences in technology and security risks between traditional IT and blockchain-based solutions.

An effective on-chain solution is one that is robust against cyberattacks and other security risks. Accomplishing this requires developing and implementing a security strategy based on security best practices from both inside and outside the blockchain space. 

For help with developing your organization’s blockchain security strategy or performing the audits needed to ensure the security of your smart contracts, reach out to Halborn.