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Blockchain’s appeal stems in part from its immutable nature. It can be thought of as a public ledger that records data in hash functions, with timestamps that ensure the information cannot be altered or otherwise tampered with. Because data on the blockchain cannot be overwritten, it is impossible to manipulate any information recorded onto it.
However, just because data on the blockchain cannot be altered in any way does not make the technology safe. On the contrary, a seemingly never-ending stream of attacks on cryptocurrency exchanges and DeFi applications serves as a constant reminder that blockchain technology remains far from being immune to hackers.
The most recent incident was a fairly mild one. On January 18, it was reported that the popular Crypto.com cryptocurrency exchange had become the latest hacking victim in the industry, losing $15 million worth of Ethereum tokens that were removed from user’s wallets. Crypto.com said a “small number of users” experienced “unauthorized activity” in their accounts, leading it to temporarily suspend withdrawals and urge its users to sign in and reset their two-factor authentication.
The good news is that this was a fairly minor incident, and while some reports said Crypto.com could have lost far more than the reported $15 million, it reinstated withdrawals just a few hours later. Crypto.com CEO Kris Marszalek also tweeted to reassure users that “no customer funds were lost”.
Attacks on crypto exchanges are nothing new, but far more worrying is the growing prevalence of incidents in the emerging DeFi space. A case in point being the high-profile attack on the decentralized finance platform BadgerDAO in December, which resulted in more than $120 million worth of assets being drained from user’s wallets.
“This was a more significant and unfortunate compromise,” said Avarta Chief Executive Matthew Ainscow. “The defi space is growing exponentially and one of the main pain points currently is around security.”
The most alarming thing about the BadgerDAO incident is that the attackers were able to take advantage of a vulnerability on its website, injecting a malicious script into its user interface. It allowed the hackers to intercept user’s transactions and divert them to an alternative wallet address whenever the script was active. The attackers apparently ran the script at random intervals to avoid detection for over a month, and in one case managed to intercept a transfer of 896 Bitcoin, worth more than $50 million at the time.
Protecting Your Crypto Assets
Such incidents prove that despite the immutability of blockchain, interacting with the world of crypto remains a risky endeavor. The promise of big profits and financial freedom afforded by DeFi means crypto is unlikely to lose its appeal anytime soon however. So the onus is firmly on the individual to ensure their assets are safe.
Ainscow said people can protect themselves by only trading their crypto assets on reputable, well-known exchanges that have a clean history and proven security. Despite its recent hack, Crypto.com is a pretty good example, with customers whose wallets were affected reporting they could once again access their funds soon after.
“For DeFi apps, the risks here are significantly higher due to the enhanced anonymity of both sides,” Ainscow said. “Extensive due diligence is required before one can be sure and fully trust his or her funds to the DeFi application.”
One extremely useful resource for researching DeFi apps is DappRadar, which is a community-led service that ranks so-called dApps, giving users a way to track their performance and history and ensure they can be trusted.
DappRadar provides useful features including the ability to search for dApps by category – such as a trading dApp or a lending dApp – and filter out those that are considered to be risky. It also provides tools to track transaction activity on individual dApps, the size of their community and so on. That’s useful, because a strong community is a sign of trust in any dApp.
When it comes to storing crypto, users may also want to consider a specialist cryptocurrency wallet that has a strong focus on security. A good one is SafleID, which is a smart contract wallet that supports Binance Smart Chain, Ethereum, Polygon and other networks and makes it possible to interact with DeFi apps while securing your wallet address and private key via its Safle Vault.
Then of course there’s Avarta’s own multi-chain consolidated crypto wallet that claims military-grade security by combining biometrics with machine learning to eliminate the need for password-based security.
“Avarta is bringing the world’s first complete multi-chain, multi-factor authentication ecosystem with biometrics technology, where every user can have access to biometrically enabled transactions on Web 3.0 and a distinctive Trust Scoring System of its own,” Ainscow said. “We aim to build a biometrics-centric ecosystem to improve user experience and to promote critical growth of the blockchain.”
Like SafleID, Avarta is also designed to service multiple DeFi apps. It acts as a reliability certification tool for users whenever they interact with a wide range of dApps.
Users can also take steps to safeguard their transactions using a protocol such as Manta Network, which is aiming to improve privacy and security in DeFi, primarily by obfuscating wallet addresses. Manta relies on cutting-edge cryptographic tools such as zkSNARKs to ensure end-to-end privacy guarantees for DeFi apps, eliminating some of the most inherent security issues, namely transparent addresses and information traceability.
Manta’s components include a decentralized privacy payment protocol and privacy token exchange protocol, and it also has plans to build a decentralized privacy lending and synthetic asset protocol in the future. The idea is that by using these privacy-preserving technologies, users can completely obscure their crypto assets and avoid becoming targets for hackers.
Ainscrow said the huge number of projects working to improve user safety in DeFi is an encouraging sign, showing the industry is fully aware that security is one of its most important issues. However, he called for the industry to take even more action, saying that through greater regulation and better education, it can make life far more difficult for bad actors in the space.
“Regulations and standardized security norms for crypto and the DeFi industry would significantly lower the number of hacks happening,” Ainscrow said. “Additionally more awareness and education around DeFi and crypto would eradicate most of the low-level scams and hacks which happen due to the exploitation of its weakest link – people.”
