The digital era has ushered in a new revolution in financial technology, or fintech. Specifically, the emergence of blockchain technology has allowed businesses and individuals to store data securely while minimizing the risks of data tampering or hacking through the use of a digital ledger, or record of activity, that is shared between computers in a network (IBM). While the technology was initially designed to provide secure and rapid transactions for cryptocurrency, many other businesses and organizations have used the specific advantages of blockchain tech to their advantage. Currently, blockchain plays a vital role in a wide variety of industries, such as insurance corporations, protecting against money laundering, storing personal data in the healthcare system, and the media and entertainment fields (IBM). While blockchain technology has traditionally been viewed as completely fool-proof, attacks in recent years have exposed vulnerabilities in the blockchain infrastructure that have made such systems easier to hack. These flaws have led experts and others to reconsider the true security of a blockchain network (IBM). These hacks can have significant impacts on the health and operation of the crypto market and can negatively impact consumer confidence in banks and other financial institutions.
Fundamentally, blockchain’s structure and design is the primary reason the technology is so secure. In blockchain tech, new data that is input into the system, such as a record of a bank transaction or a file for a new patient at a hospital, is stored in digital blocks. The security of the system lies in the fact that these blocks are interconnected to all other blocks in the blockchain system, making it near impossible to tamper with the data stored within these blocks without a group verification or authorization from different parties involved in the system (IBM). These systems are decentralized, meaning that the blockchain exists digitally in a network that is shared among computers and participants to prevent failures in the technology at any specific point in the network (IBM). In addition, these systems utilize various consensus mechanisms to verify that each transaction or edit to existing data is accurate. In the case of Bitcoin, miners (people verifying the transaction) follow the Proof-of-Work mechanism and must solve an encrypted signature, called a hash, for each transaction (Frankenfield, 2023). After this, they conduct a series of tests, checking various aspects of the data block such as the header, the timestamp of updates, and the first transaction recorded to verify that the block has not been edited without approval (Frankenfield, 2023). These specific characteristics provide blockchains with their incredible security and are part of their appeal in storing and transferring highly sensitive or personal data such as cryptocurrency. However, hackers can often exploit weaknesses in the technology or consensus mechanisms to change or retrieve data without requiring validation.
Furthermore, these hacks can have devastating impacts on the economy and institutions, and in certain cases, can pose grave threats to national security. Chainalysis reports that 2022 was the biggest year for cryptocurrency hacking to date, with an estimated $3.8 billion stolen by attackers linked to North Korea (Chainalysis).The vast majority of the victims have been DeFi (decentralized finance) protocols, which refer to specific technologies built upon unique blockchain networks (Chainalysis). In addition, most experts believe that the North Korean government is taking advantage of crypto hacking to fund its nuclear weapons program, carrying serious national security implications for countries across the globe (Chainalysis). Monash University’s Blockchain Technology Center reveals that attackers can often trick the consensus mechanisms in different systems by adding so many nodes that they controlled 51% of active nodes in the network; this is known as the 51% attack (Blockchain Technology Center). This allows them to control the hashing process (creating unique digital signatures for transactions) and edit and delete transaction records to cover their trail as they steal millions (Blockchain Technology Center). Technology consulting firm Foundry4 also writes that other common blockchain attacks can include intercepting data as it is sent through internet service providers (ISP) in routing attacks or through more traditional phishing attacks, which attempt to lure users into clicking malicious links and submitting personal information (foundry4). Consumers’ financial insecurity as a result of attacks such as these can also lead to widespread distrust in banks and other institutions, potentially stirring unrest and creating economic panic. While blockchain hacks may seem insignificant to average internet users, they can have an immense impact on both communal and individual security.
The proliferation of blockchain technology has raised new concerns about the safety of crypto-based systems in a variety of industries, from entertainment and media to healthcare. Large-scale and precise hacks have drawn attention to specific flaws in these systems that have traditionally been perceived to be fool-proof. Often, these hacks can have devastating impacts on consumer confidence in financial markets, and can create potential risks to personal security. As blockchain technology becomes commonplace in American finance, it is vital that it evolves to respond accordingly to increasingly formidable cyber threats in an effort to keep both users and corporations safe and secure.
