Safety and Privacy on the Blockchain
It is, by definition, a decentralized ledger.
Every record written and every action and transaction occurring on the blockchain is secured by a unique cryptographic key that is meant to be unhackable. Every time a new block on the chain is formed.
This means that every action on the blockchain is dependent on the two unique keys before it even happens. Indicating anyone on the blockchain can verify any and all blocks being processed.
You can essentially check all your transactions and the transactions of those you’ve dealt with; it’s all public, and their transactions and so on. It’s all public, so privacy on the blockchain isn’t a given; however, if ever a hack was to occur, you’d know exactly where it went and can revoke the user’s right to interact with your wallet. But at that point, it’s already too late. Often the first and best line of defense is the users themselves.
The most common blockchain exploitation tactics
– Rug pulls: This is when an entire crypto project turns out to be a scam, and the people who created it reap the profits and disappear with your investment. There have been over 1300 such scams in 2021 alone, costing people billions.
– 51 percent attacks: This is when the majority of network owners conspire against the rest to change things around them, as seen with Ethereum Classic and Horizon.
– Flash loan attacks: These attacks use smart contract inputs designed to support flash loans hijacked to redirect assets to the hacker’s wallet, as seen with xToken and their $24 million hack.
– Cryptojacking: This is when computers are hacked, and crypto miners are installed, using the computer’s processing power to mine for the hacker.
Blockchain cannot be managed the same way as a traditional Web 2 system where data protection is centralized. As such, blockchain security experts have needed to innovate.
Today, there are three common ways that blockchain participants and cybersecurity experts can protect their data privacy.
Smart contracts
Automated contracts and transactions, known as smart contracts and are a pillar of monetary freedom and privacy on the blockchain.
Privacy regulations require blockchains to have a way to report and repair any error that may occur, and developers should have the ability to alter the smart contract when needed.
Ownership
Blockchain data is equally owned by all the participants, but we haven’t figured out the right way to hold everyone accountable for a hack.
Regulations then require one person to be responsible, and blockchain companies meet this need by storing users’ personal data outside the blockchain, linked through index numbers.
That way, the company users’ data can be centrally monitored, like the ol’Web 2 models securing the database while sharing the blockchain.
Deletion
Privacy regulations often require blockchains to have the ability to delete users’ data if they request it completely.
This is why many users opt to store their personal data in a separate database outside the blockchain.
It is good to vet any blockchain before dealing with it.
For the near future, at least, it seems Web3 technology will continue to be built on, or for that matter, integrated with classic Web2 interfaces.
For the most part, it seems that phishing scams and hyped-up cash grabs are the biggest threat to safety and privacy on the blockchain.
But there is little one can do when a user willingly, although unknowingly, gives away their wallet information to the wrong source that seemed trustworthy. Ultimately, the advice is the same as it was two years ago: Only invest with what you are willing to lose, don’t put all your eggs in one basket, and browse carefully.