Web3.0 is an emerging field that encompasses an entirely different view of the internet, both philosophically, and technically. It has brought monumental changes to the current monopolised internet; merging decentralisation, finance and security all together.
But with any innovation, comes the risk of attacks, and web3 is no exception. News of Defi exploits are not uncommon, and in the second quarter of 2022, DeFi the industry lost a whopping $156 billion in valuation.
Cyber attacks on web3 are becoming increasingly common, and the demand for security professionals has increased considerably; in this growing landscape of Crypto & DeFi, here’s how you should approach Web3 security.
Anonymity is a double-edged sword. One one hand, anonymity is great when you want to protect your customer’s privacy. On the other hand, it is also helpful to hackers and other people looking to exploit a system, as it gives them anonymity.
A hacker can have tons of wallets which they routinely rotate to change their identity. The process of tracking wallet movements is complicated, and this makes it difficult to track attackers. Nonetheless, Blockchain Analytics tools are especially helpful here, as they use several techniques to make the process simpler.
While a KYC goes against the anonymity provided by web3 systems, it also improves the level of trust in DeFi apps, offering users protection. Such a system is also helpful against attackers, as it can help guard against rugpulls and other attacks. TRM labs and CoinPath are two of the most common blockchain analysis tools used by the industry today.
Blockchain technology at heart, is open source. Public blockchains like Bitcoin, Ethereum & Polkadot are available publicly on their respective repositories. With a few exceptions, this is followed by majorly all the DeFi projects in the industry. And in general, it is a good practice.
This adds to the transparency in Web3 projects, and improves the auditability. As the project is available publicly, anyone can check the code for potential flaws and architecture vulnerability.
But this approach also opens the possibility of attacks. As the code is available publicly, any attacker with an intent to make profits, can scan through the code to find vulnerabilities and plan their attacks accordingly.
Companies rely on bug-bounty hunting and white hats to improve on the quality of their audits, but this also puts them at a risk. And this is why most DeFi companies rely on Smart Contract Audits for maximum security.
An Audit ensures a clean and unbiased coverage of the code architecture. Scrutify ensures a 95% test coverage in all their audits, to provide maximum effectiveness.
One of the chief risks faced by web3 is centralisation, which is an issue inherited from past web2 practices. Centralisation means the trust and all subsequent responsibilities are put onto a single entity or user.
While many believe decentralisation and blockchain go hand in hand, that’s not the real case. A lot of projects retain some centralised characteristics and so they suffer from issues around it. Centralised Exchanges are one example, where all the trust is put onto a single centralised entity.
This is bad, as any attack on the platform can directly affect its users – which was one of the problems fixed by the decentralised architecture. One common example is the oracle manipulation attacks, where the price is read only from a single oracle source. These problems can again be fixed through Smart Contract Audits and blockchain analysis tools.
Prevention is The Best Cure
For any technology to succeed, it has to be secure. This makes it important to incorporate security by design. This approach helps web3 engineers develop products with secure code and almost impenetrable infrastructures.
When you’re dealing with any blockchain related technology, it’s imperative that you follow the design standards set by the industry. These designs have been tested over and over again, and their security is proven.
Audits are again helpful in this scenario, as your code is tested against the industry’s best practices and a given set of smart contract weaknesses.
Blockchain is still in its nascency, and there’s a lot of experimentation around this technology. A lot of times, it’s the DeFi semantics and poor liquidity that give rise to attacks. And as mentioned by this report, a lot of attacks stem from liquidity insufficiencies.
And so it becomes important to have a contract failure control procedure in case anything goes wrong. To protect their customers, DeFi businesses can implement a fail-safe strategy where the funds are rolled back into the user’s account, and the contract is safely destroyed.
Web3 security is a hot topic, and the demand for talented individuals has been rapidly increasing. Gone are the days, when crypto was merely used as a form of payment. With the rise of EVM based smart contract languages and blockchains, the security of DeFi apps stands at a considerable risk.
Approaching Web3 security can surely be a challenging task, but taking the right steps can make it a lot better.