Enterprises in every sector are trying to adopt blockchain technology and build various blockchain-based platforms and applications to benefit from its features, such as its decentralized nature, distributed ledger technology, transparency, privacy, etc. Although blockchain’s technical implementation is increasing every day, so are the blockchain risks associated with this advancement. It is essential to identify blockchain risks and plan security measures to eliminate the threats or mitigate their impact on the entire organization.
Blockchain technology could be a boon for your organization’s technical evolution. However, you might be worried about the blockchain risks that come with it. This blog will cover everything you need to know about the various risks you have to pay attention to achieve efficient and effective results from blockchain products.
Types of Blockchain Risks
The four significant blockchain risks are as follows:
1. Vendor Risks
With enterprises widely adopting digital ledger technology and decentralization to create blockchain-based platforms and applications, the need to take new measures to provide more security arose. This led companies to use third-party applications and platforms for blockchain payment platforms, wallets, smart contracts, and more. The demand for third-party solutions has gained momentum, but it also suggests that enterprises wishing to use such solutions must verify the security measures and vulnerability points. Suppose the third-party application has limited measures to ensure security and privacy or has a faulty smart contract. In that case, it can pose a threat to your application or platform by leaking information or allowing a hacker to break into your network infrastructure. Therefore, enterprises must avoid vendor-related blockchain risks because they can cause massive losses.
2. Endpoint Security Risk
One of the most common blockchain risks arises from outside the blockchain. This risk is associated with the distributed ledger technology that ensures all participants have access to the records throughout the global network, eliminating the need for a central authority. Therefore, an endpoint can be any place and time a participant is accessing the blockchain’s data. These endpoints act as an opportunity for hackers to steal data to look for openings they can get into. After disrupting privacy and security, a hacker can access credentials that will enable them to steal sensitive information or leverage users for ransom.
3. Lack of Standards and Regulations
According to Forbes, one of the primary blockchain risks is the absence of standards and guidelines. Since blockchain is in a phase of continual technological advancement, there are no proper standards and regulations that can be followed while working with distributed ledger technology or blockchain technology. Every enterprise, every consortium, and every application or product is operating on different sets of guidelines. It makes integrating chains very difficult due to this lack of standardization. This means that one developer will not benefit from another developer’s work since there will be a conflict between their guidelines.
This contributes to blockchain risks in terms of security, privacy, and interoperability.
4. Cryptocurrency Risks
Cryptocurrency is a type of digital currency that individuals can use to make purchases. It uses an online ledger and is encrypted by cryptography to ensure the transactions are carried out securely. It is independent of government supervision as there is no central authority that holds power, making it a decentralized and distributed ledger technology. The blockchain risks associated with cryptocurrency arise because it is based on complex and advanced technology. This results in fewer experts in cryptocurrency and blockchain as the technology is changing constantly, resulting in possible gaps in cryptocurrency development.
Since it is challenging to hack cryptocurrency, hackers find new and sophisticated ways to steal cryptocurrencies from high-end cryptocurrency owners. For example, gaining wallet access through social engineering tactics to get owners to double-spend by launching a 51% attack to disrupt the Proof-of-Work (PoW) algorithm.
Why Should CIOs Know About Blockchain Risks?
Blockchain risks lead to malicious activities such as double-spending and record hacking, which means a hacker will try to steal a blockchain participants’ or cryptocurrency owner’s credentials and transfer money to his/her account or hold the credentials as leverage for ransom. As per MIT’s 2019 report, since 2017, hackers have stolen around $2 million worth of cryptocurrency. Another malicious activity is double-spending, where hackers access the majority of the power and rewrite the transaction history. This allows them to spend the cryptocurrency and erase the transaction from history once they receive their orders. With digital money, the hacker can send the merchant a copy of the digital token while retaining the original token and using it again.
Implementing and maintaining blockchain applications and platforms is expensive. If there is a fault in the working or the system fails due to the blockchain risks, it will cost a massive amount of money to fix things. A blockchain expert is required to overcome such risks, and the expert may charge a hefty amount to provide solutions. If the security is breached and the sensitive data gets leaked or is held by an attacker for ransom, it will ruin the enterprise’s reputation, and it will lose trust among its customers, stakeholders, and the market.
To avoid these problems, CIOs must be aware of the blockchain risks that could potentially harm an entire organization. They must monitor the infrastructure regularly and develop effective security measures to mitigate the blockchain risks.
With the continuous advancement in blockchain technology, blockchain risks will increase day by day. Attackers will continue to hack into blockchain by finding vulnerabilities and weak points through blockchain risks. Thus, enterprises are looking for blockchain professionals to develop secured blockchain products, develop precise smart contracts, and integrate blockchain with advanced technologies like IoT to benefit from their features.