Security Issues of Blockchain and Cryptocurrency Wallets

Global cryptocurrency is a very lucrative and fast-growing market. This also makes it a prime target for malicious intruders. Compared to general websites or e-commerce companies, intruding or attacking cryptocurrency wallets and currency exchanges is much more cost-effective.

 

I. Introduction to wallet security and attack methods

 

1. Hardware wallet

 

A hardware wallet is connected (with or without cables) to a end user computer. Through a Web Wallet Applications, the user can link and concatenate to the device. After verification, transactions can be initiated and completed. If security issues exist on the computer prior to transaction, the user is subject to certain risks, e.g. cracker, malicious bots (Botnets), or the installation of Backdoor and Spyware. Most of today’s hardware wallets are equipped with a certain level of security protection mechanism or measures, so the risk involved is less than that of using software wallets; nevertheless, such protective measures are can still potentially be cracked.

2. Software Wallet

 

When a software wallet program is executed by the user on a computer that has been subject to intrusion, attack from malicious bots or installation of Backdoor (Trojan) software; the risks are extremely high, and theft of cryptocurrency is very likely.

 

If you were to ask me how to be safe, I will tell you that a onetime-based, self-recovery, and un-writable operating system (OS) computer will yield better privacy and security.

 

From the basic I/O, executing MBR, the loading of GRUB, and booting the Kernel with the bootloader to running init — /sbin/init, executing the run-level specified by us, starting /etc/rc.d/rcX.d[X=0-6], and so on; The complete startup sequence is the boot process of the OS. Every stage can be programmed and edited. When the OS is booting or starting up the boot process, it enters the system and runs the OS. The OS has to be un-writable; i.e. the Full Space of the OS. All the system files (Kernel Space) and application files (User Space) in the OS are mostly read-only, with the exception of a few applications. Some system files should still be writable and the memory should be clean.

 

This way, the system security and privacy can be enhanced. Similarly to hardware wallets, independent hardware systems are protected by Security Elements, with sys/app files not being tamperable. In fact, many penetration testing systems, PT Systems — Lv-OS, tools, or pure L-Systems are workable, but the systems operate based on different security concepts. Although they are different by nature, they are effective and can ensure the security of the Operating Systems.

3. Host servers and exchanges on the blockchain or external nodes

 

In Figure 1, the blockchain server, nodes, back-end application server, blockchain database, or the front-end trading host server is connected to or making a transaction with a hardware wallet. There are numerous issues, Figure 1 only lists security issues A to Q. Through the figure below, we can analyze areas or nodes which crackers may take advantage of, in collecting and analyzing data. This also allows us to conduct penetration tests.

 

Blockchain servers or Digital Cryptocurrency Exchange (DCE) are undoubtedly, the main targets of Cracker attacks. When a Cracker intrudes, tampers, alters a program or causes loopholes or vulnerabilities/flaws in a system, installs a bot, exploits your 0 day vulnerabilities, or breaks your system; the Cracker will steal keys, addresses, or relevant information after gaining system access. Blockchain nodes, connected servers in a cryptocurrency exchange as well as collaboration systems can all potentially be under the control of a Cracker.

 

[Note: In the following article, I will explore and share what steps a hacker takes to attack a host server or a system.]

Figure 1. Blockchain servers and Digital Currency Exchanges on blockchain or external nodes

II. Security risks of hardware wallets

 

Security risks of hardware wallets still exist today. For example, a Cracker might use physical interference to damage a hardware wallet and cause it to malfunction so that he or she can intrude and break the system.

 

For instance, an attacker launches a side-channel attack by assessing the power consumed by an electronic circuit or electromagnetic emission, to gain control of the device; or the attacker might implement a fault attack to interfere with electronic circuits by means of overheating, overclocking, generating a strong electric or magnetic field, or lasers.

 

When errors arise from the hardware, such as skipping of the PIN and gaining keys or signatures, outputting incorrect information, or producing unexpected results; an attacker can perform a Differential Fault Analysis (DFA). This allows the creation of unpredictable errors in an unpredictable environment. Then a side-channel attack will be launched to break the system. Therefore, physical attacks are the main security issue.

4. Security risks of software wallets

 

Security of a software wallet is based on the software wallet app and the OS platform on which the application runs. When a user conducts a transaction, a personal computers or tablet computer might be used.

 

The biggest security issue arises when a problem already exists on the computer or the user is uncertain as to whether their computer has any security problems. This uncontrollable risk is the biggest problem to security.

 

Your average user probably lacks technical knowledge and only wants to know which hardware wallet on the market has the best performance. Based on the above, an ideal wallet should be able to rule out all abovementioned problems and provide enhanced transaction convenience and security, and surpass other hardware wallets on the market in terms of performance. The most important thing for an ideal wallet, is to be “trusted” by users for all types of transactions, regardless of when and where.

 

No one can guarantee 100% safety, but the company that is able to achieve near perfect security may just become the leading business in the market. A Chief Information Security Officer once said: Despite having the best secure coding practice and the safest software & hardware protection, there is no better way to assess security than an attack-oriented way of thinking.

 

Since the rewards are very promising, attacker will by hook or by crook, devote a great amount of time to research, analyze, and crack a system, even if the chances of success are extremely slim. In the money market, a pitched battle between good and evil regarding the security issues of blockchain and cryptocurrency will never end. There will always be new ways to crack, attack, and intrude; in other words, as long as there is connectivity, anything is possible. This is not only a great opportunity in terms of development, but also an ongoing problem.