Hacking of blockchain platforms is a growing concern in the digital community. According to Immunefi, a company specializing in cryptocurrency network security, hackers withdrew over $200 million from 32 projects in the first 2 months of 2024. That's 15.4% more than in January and February 2023. The total damage from exploits last year amounted to $1.8 billion. To ensure the security of cryptocurrency platforms, developers are constantly improving technologies.
Investing in digital currency attracts high returns. Therefore, there are many dangers in the cryptocurrency market. Analysts combine the risks into several groups:
Vulnerabilities in cryptocurrency wallet security systems. Private keys, which are 256-bit code, securely guard access to vaults. It would take attackers millions of years to crack them. Wallets become vulnerable due to bugs in the program and user errors.
Phishing attacks. Attackers often use fake emails on behalf of companies to coerce users into providing sensitive data. For example, in 2023, hackers sent fake hacking notifications to Trezor customers and asked them to provide a mnemonic phrase for verification purposes.
Exchange Risks. Most users buy and sell cryptocurrencies on the CEX. However, exchanges can be subject to hacker attacks. Most often, attackers withdraw money from users' wallets.
Compare the main cryptocurrency wallet vulnerabilities that are often exploited by attackers, as well as ways to protect yourself:
[Vulnerability]: Bug in the random number generator when creating a wallet.
[Note]: A random number generator generates a private key with repeating characters (e.g., a key with many zeros) instead of a random number.
[Protection method]: It is necessary to check the code string for the presence of identical characters. You can use special open source tools (e.g. Swippcore) to convert a short key to a long key.
[Vulnerability]: Generating keys from non-random data (Weak Brainwallet).
[Note]: Brainwallet technology allows you to create a secret code from phrases or individual words specified by the user. Often users generate keys from simple words, numbers like 12341234, phone numbers, and so on. Hackers are left to find the right combination, taking into account human predictability.
[Protection method]: It is safer to generate a Private Key in the wallet or set a complex combination of numbers and letters of different case, special characters.
[Vulnerability]: Creating compromised keys on scam sites.
[Note]: Online address generators for paper wallets may issue the same keys to different users or contain vulnerabilities to intercept them.
[Protection method]: It is recommended to create keys only in hardware devices or cryptocurrency applications.
The decentralized nature of digital currency opens up many opportunities for investors and users. Risks in the crypto market are also high, but developers are constantly improving protection systems in networks and individual projects. Exchanges and cryptocurrency wallets are usually the first to test new security technologies.
Biometric authentication for cryptocurrency wallets
This technology uses a person's unique biological traits for identification. Biometrics is already being integrated into the interface of cryptocurrency wallets, providing an additional level of security. To gain access to coins, you need to verify your identity through certain mechanisms. Among them:
Fingerprint scanning. This is one of the most common types of biometrics. In 2024, imToken, Trust and other mobile wallets use scanning.
Facial Recognition. The popularity of the technique is due to its simplicity and passive identity verification process. The user is only required to look at the camera. The scanner evaluates facial features, checking the obtained data against the original data. In 2024, wallets (e.g., ZenGo), exchanges (e.g., Binance) and other cryptocurrency platforms are using such biometrics.
Iris and retina scanning. This technique is characterized by high identification accuracy, but is still being tested for cryptocurrency applications. The program reads a unique pattern in the iris or blood vessels of the fiber of the eye.
Voice Recognition. While easy to use, the technology does not provide complete security. In 2024, fraudsters have learned how to use AI to reproduce a person's voice.
According to analysts, the integration of biometric authentication mechanisms into cryptocurrency projects will intensify as the industry grows. In combination with artificial intelligence and machine learning, this technology can become the basis for creating more accurate and flexible methods of identification.
In the future, technology will learn to recognize gait, heart rate. Biometric systems will adapt to age-related changes in users. Exchanges and cryptocurrency wallets will actively implement these mechanisms to enhance security and increase customer confidence.
Decentralized methods for identification
Web3 gives users the exclusive right to manage personal data themselves without the involvement of a third party. This is possible through the introduction of Decentralized Identity (DID) - digital identity cards that store information on the blockchain.
The blockchain acts as a publicly available verifier and repository of information. If someone needs the validity of a DID, they can find the corresponding public key in the blockchain.
In 2024, the technology is used in decentralized KYC (DOCK) systems. But the potential of DID is much broader. Identifiers can be used for quick access to cryptocurrency platforms and honest online voting. The types of DIDs available in 2024 are:
Off-chain attestations. Digital certificates that are stored off-chain (in wallets) and signed with a DID. The DID can be used to verify the validity of the data.
On-chain certificates. Stored in network smart contracts. The algorithm compares the information with the provided public key (DID).
Soulbound Tokens (SBT). Digital assets that contain the user's personal data and information about the organization. Usually issued by exchanges (e.g., Binance) or wallets.
Privacy of cryptocurrency transactions
The idea of decentralized identity is based on the principle of anonymity of personal information. This is crucial for cryptocurrency users in an increasingly regulated environment.
This will allow transaction details to be hidden from outsiders. In 2024, cryptocurrency companies are already testing homomorphic encryption and zero-knowledge proof techniques for identification without disclosing biometric data.
Implementing security features in hardware wallets
The concept of autonomous storage of private keys implies the creation of its own security system. In 2024, the trend to use secure chips in hardware wallets is gaining momentum.
In 2024, Ledger, Keystone, ColdCard crypto wallets are using secure chips. For example, the Ledger Nano X utilizes a dual-chip architecture with a universal MCU and a single Secure Element SE (Secure Element ST33J2M0). Secure Element contains sensitive account information and allows you to run isolated applications in a secure environment.
It is theoretically possible to hack hardware wallets with Secure Element technology, but it would require significant resources.
To cope with potential challenges in the growing digital space, it is important to keep an eye on new investment protection technologies.
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