The stereotypical “hooded loner hacker” is a shady and malicious character looking to compromise system security for financial gain or personal recognition. But not all hackers wear hoodies, and not all are malicious. Ethical hacking is a relatively new term for a fairly old activity: evaluating system security by emulating the tactics and techniques of malicious attackers. Ethical hackers – also known as white hat hackers –  use their skills to enhance the security of blockchains, smart contracts, and dApps by exposing code vulnerabilities.

What is ethical hacking?

Ethical hacking is the practice of permissively attempting to achieve unauthorized access to a computer system, application, or data set. Ethical hacking is fundamental to blockchain security. By mimicking sophisticated “black hat” attackers, white hat hackers can uncover security weaknesses, outline them in detailed reports, and propose substantive remedies before malicious actors exploit them.

Blockchain weaknesses

Security is the cornerstone of decentralized ledger technology. However, the relative immaturity of blockchain technology and resulting security weaknesses, among other reasons, have resulted in the widespread loss of user funds across multiple projects. Injection attack vectors frequently target the client-side of decentralized applications (often cross-site scripting attacks on block explorers) but also server-side, database, and smart contracts. Thus, attackers frequently circumvent complex security infrastructure by exploiting frontend vulnerabilities. Secondly, due to the immutability of the blockchain, data can only be modified with the consent of a supermajority of network nodes, complicating avenues for security enhancement in the post-mainnet stage. In addition, most blockchains are public, allowing anyone to download and store a full copy of the ledger’s contents.

Significant blockchain vulnerabilities

  • Centralized architectures: In 2021 alone, up to $1.3 billion in user funds were appropriated from DeFi protocols. By far the most common factor in these hacks was over-centralization in blockchain architectures. Exacerbated by centralization, token minting exploits and rug pull schemes were two common attack vectors in DeFi breaches. These are often due to single point of failure risks within the protocols, as users with privileged access are especially vulnerable to exploit. 
  • External intersections: DeFi bridges and Web3 oracles represent two more critical vulnerabilities for blockchains. Bridges are protocols that allow users to move assets from one blockchain to another—for example, from Polygon to Arbitrum. Because they rely on smart contracts, they’re subject to the same vulnerabilities as any other dApp or smart contract. Oracles are third-party data providers that supply off-chain data to smart contracts. Because they’re not part of the blockchain network, they’re not subject to the same oversight and thus security scrutiny as other parts of the system. 
  • Code reuse: Code reuse is far more prevalent in Ethereum smart contracts than non-blockchain apps. In the nascent blockchain industry, newer projects rely extensively on existing protocols at the developmental level. Due to the open-source nature of blockchain projects, anybody in the industry may access project source codes and implement them with few changes. This often results in duplicating faulty or buggy codes, potentially harming the network’s security. Recall that blockchains are immutable, meaning that interacting with flawed smart contracts will always carry considerable security risks once deployed.
  • Defective set-ups: This is distinct from code reuse. Because blockchains operate as client-side software in a decentralized peer-to-peer network, faulty configurations are a genuine concern. Implementing insecure default software configurations can create potentially serious avenues for a security breach.

How to ethically hack a blockchain

Securing your blockchain is one obvious way to safeguard investments, hard work, and reputation. As the blockchain industry continues to grow and evolve, so do its threats and vulnerabilities. As such, penetration testing and smart contract audits have become essential tools for ensuring the security of blockchain-based systems. 

Penetration testing is a form of ethical hacking that projects can utilize to identify weaknesses and vulnerabilities in a system. By simulating real-world attacks, penetration testing can help organizations to understand their security posture and identify areas that need improvement.

Smart contract audits are another critical tool for ensuring the security of networks. By auditing the code of smart contracts, Web3 projects can ensure that they are free from vulnerabilities that black hat hackers could exploit at any stage of development. By combining penetration testing and smart contract audits, organizations can comprehensively understand the risks and vulnerabilities within their blockchain-based systems. Taking vital steps to address these risks and exposures can help ensure their systems’ security and the data they contain.

Interested in learning about potential blockchain security vulnerabilities and how to stop them before they occur? Connect with our Web3 security experts at halborn@protonmail.com.

The Role of Ethical Hacking in Blockchain Security
Rob Behnke
09.15.2022