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Securing a decentralized future: The importance of cybersecurity in Web3

Patrick Gardner, Managing Partner at C8 Secure, a Continent 8 company

The dawn of the decentralized web is upon us, and the rise of Web3 technology is a testament to this fact. Web3 is an alternative to today’s highly censored internet and is becoming increasingly popular, which calls for urgent measures to ensure that the foundation of this revolution remains secure and trustworthy.

The emergence of Web3 technology has created an opportunity for financial technology (Fintech) companies to innovate and provide new services like decentralized finance (DeFi) networks, decentralized social trading systems, asset tokenization, cross-border payment solutions and smart contracts.

It is expected that the Web3 market will reach a cumulative valuation of $81.5 billion by 2030, growing at a compound annual growth rate of 43.7%. However, since Fintech has started to catch up with the growing popularity of Web3 technology, cybersecurity, especially, has become a significant concern.

Propelled by blockchain technology and decentralized networks, Web3 envisions a world where users have full control over their data, decentralization fosters inclusivity, and intermediaries no longer dictate terms of use. However, despite the robust security measures associated with these technologies, numerous nefarious third-party entities have infiltrated blockchain systems. In 2021 alone, $2 billion was lost due to various blockchain protocols being hacked. Additionally, over the first three-quarters of 2022, bad actors were able to gross more than $3 billion as part of 125+ compromises.

These numbers are concerning as they suggest that despite the belief that cryptocurrency blockchain systems possess top defenses, they are not immune to attacks. Hackers can continue to use various attack vectors, such as smart contract exploits, phishing, and rug pulls, to inflict significant financial damage to crypto users globally.

As the Web3 market continues to grow, there is a need for a more collaborative approach to cybersecurity for Fintechs. With C8 Secure, developers can delegate security concerns when building Web3 applications so they can focus on other aspects like tokenomics and regulatory complexities.

How Web3 impacts cybersecurity

As the Fintech industry increasingly adopts Web3 technologies, it can realize significant cybersecurity benefits if implemented correctly. These benefits have the potential to fundamentally change the way we approach security and privacy in the digital realm. A few key advantages Web3 offers are decentralization of data across multiple nodes in a blockchain, data immutability, transparency and traceability, self-sovereign identities, privacy preserving technologies and trustless environments.

At the same time, Web3 also poses new challenges for cybersecurity. For instance, smart contracts on a blockchain can have security vulnerabilities that hackers can exploit including re-entrancy attacks, integer overflow, and underflow, among others. Once deployed on the blockchain, these contracts are immutable, meaning errors cannot be easily fixed, making rigorous testing and auditing crucial.

In addition, cybercriminals can exploit smart contracts through social engineering attacks, such as phishing, that trick users into giving their private keys or other credentials. Because of its popularity, cryptocurrency phishing has become a separate category of cybercrime with a 40% YoY increase.

In late December, it was reported that a record-breaking $3.7 billion was stolen in digital-asset-related attacks. Hackers stole $3.4 million worth of GMX tokens from a DeFi user in early January.

These security risks require Web3 Fintech companies to ensure their smart contract solutions are thoroughly tested and audited by trusted cybersecurity providers, like C8 Secure. Emphasizing secure coding practices, comprehensive auditing, continuous monitoring and layered threat prevention controls are vital to mitigating these risks

Another attack type that can harm blockchain networks is the distributed denial-of-service (DDoS) attack. Blockchain DDoS attack happens when the attacker overwhelms the network with excessive traffic, eventually blocking legitimate transactions.

If a crypto exchange is under a DDoS attack, it will see a decreased trading volume. An exchange could lose $21,000 per hour when an attack stops all trading activity. A significant volume of DDoS traffic originates from SSDP amplification and application layer attacks.

Continent 8 Technologies has been protecting its customers from DDoS attacks for almost two decades. In fact, in December 2022 it observed one of the longest sustained attacks that the internet has ever seen. It lasted for an incredible nine days against 145 different customers.

C8 Secure offers various measures to prevent DDoS attacks, including upstream filtering on a large scale, network edge filtering, and volumetric DDoS scrubbing based on thresholds and ratios. With these combined solutions, C8 Secure can effectively mitigate large-scale attacks and provide top-notch protection.

Deterring Web3 cyber attacks

Although blockchain networks have distributed protection, they are not entirely resistant to cyber threats. Most often than not, especially against DDoS, their robustness depends on the number of nodes, diversity, and hash rate in the network. Implementing measures like regular audits, vulnerability scans, and application testing – services that companies such as C8 Secure offer – can help uncover potential exposure points and reinforce network security.

While it’s true that a decentralized network is more resistant to integrity attacks, the associated applications with more traditional cybersecurity weaknesses are not. Vulnerabilities can reside in several areas: attackers can exploit weaknesses in code, discover software vulnerabilities in web applications and APIs, take advantage of flaws in the container or cloud workload configurations, and even deploy bots to launch credential stuffing and DDoS attacks.

For many Fintechs, the expansion of Web3 raises security concerns, despite the technology’s immutable and transparent ledger and complex consensus protocols. To reduce these risks and operate safely in Web3 while complying with various regulations, Fintech can turn to cybersecurity companies.

For example, cybersecurity companies can offer solutions that analyze large amounts of on- and off-chain crypto data to detect fraudulent behavior and flag suspicious wallets. Such companies can also develop secure and robust code that automates financial processes in Web3 and the broader financial sphere.

That’s why partnering up with an established cybersecurity solutions provider, like C8 Secure, who alongside Continent 8 Technologies has over 25 years of experience protecting many of the most targeted sectors, will take your security posture to another level.

Learn more about C8 Secure’s solutions, here.

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