Updated on January 4, 2023 by Ian Terry
Cryptocurrencies are gaining popularity due to the benefits of decentralization and the perceived security of transactions. However, they are not immune to cyber threats. The value of cryptocurrencies has increased significantly due to the belief that they will become more valuable than traditional fiat currencies in the future. But this also makes them a target for hackers who seek to exploit any vulnerabilities they can find. As of June 2022, crypto hackers have stolen nearly $2 billion worth of cryptocurrencies.
Currently, most cryptocurrency transactions are conducted using software that can sometimes be poorly coded or inadequately tested. This leaves room for errors that hackers can exploit. To ensure the safety of transactions and compliance with the Cryptocurrency Security Standard (CCSS), organizations handling cryptocurrency need to take steps to secure all information systems that store, accept, or transact with cryptos.
How Are Businesses at Risk?
Businesses that use cryptocurrencies for exchanges are at risk of various cybersecurity threats. Some of these threats include:
- phishing attacks that try to steal user credentials,
- hacked trading platforms where cybercriminals steal funds from users,
- compromised registration forms where user information is stolen and sold on the black market,
- third-party applications that can be used to steal user data and target further attacks,
- malware that can infect mining machines, steal mining resources, and steal cryptocurrencies from online wallets, etc.
To protect against these threats, it is important to implement proper crypto cybersecurity protocols and practices and to be careful with the applications and websites used.
Cybersecurity Measures for Crypto
Below are some of the critical cybersecurity measures that organizations dealing with cryptocurrencies should employ.
Computing power of nodes should be constantly monitored.
Centralization of computing power in a blockchain network can be a risk, as nodes with the most computing power may dominate the right to append blocks to the chain. This can lead to a situation where the majority of computing power is controlled by a single entity, which can then manipulate the chain by discarding valid blocks or substituting invalid ones. These attacks pose a threat to the immutability of the blockchain, as they undermine the ability of a large number of independent nodes to validate transactions and blocks. To mitigate this risk, the computing power of nodes should be constantly monitored to identify when centralization becomes a threat.
Keys and seeds should be generated securely.
To securer a cryptocurrency system, it is important to ensure the secure creation of cryptographic keys and seeds. When evaluating your organization’s security measures in this area, focus on maintaining confidentiality. Confidentiality prevents newly created keys or seeds from being obtained by unauthorized parties by using unguessable numbers. It also protected against unauthorized actors impersonating the intended key/seed holder.
Go for regular security audits.
Cryptocurrency companies often operate as both software and financial firms, so it is important for them to undergo audits in these key areas. One effective way to reduce risk and identify potential vulnerabilities in a crypto exchange’s systems is through System and Organization Controls (SOC) reports.
SOC 1 audits are designed to assess internal controls related to financial reporting (ICFR) and detect and mitigate any potential risks that may affect the financial well-being of exchange users. SOC 2 audits, on the other hand, focus on evaluating the security of an exchange’s IT systems. Both types of audits are crucial for ensuring the reliability and integrity of a cryptocurrency exchange.
Have a crypto migration plan in place.
Cryptographic algorithms are used in blockchains to validate transactions and blocks. However, it is possible for any encrypted code to be broken eventually using a trial-and-error approach. To address this, a migration plan needs to be developed for transitioning to stronger cryptographic algorithms as a cybersecurity control measure.
Use a multisig approach
Blockchains can use a mechanism called multisig to require multiple private keys to authorize a transaction, rather than relying on a single private key. This is similar to the authorization processes used in accounting systems, where multiple employees must authorize a transaction.
In a blockchain, multisig issues multiple private keys for a single wallet and requires more than one private key to authorize a transaction. These private keys are typically stored in different locations, so if one is lost, there are still enough private keys available to authorize the transaction.
Implement secure code scanning.
Cryptocurrency exchanges often develop their own software and applications, making secure code scanning an important aspect of cybersecurity. Code scanning involves using various tools to identify vulnerabilities and exploits in application security, including Software Composition Analysis (SCA), Static Application Security Testing (SAST), Dynamic Application Security Testing (DAST), and Interactive Application Security Testing (IAST).
There are many secure code scanning tools available, including those from OWASP (Open Web Application Security Project), GitHub, Checkmarx, and others. By implementing secure code scanning, exchanges can strengthen the security of their software and reduce the risk of potential attacks.
Red teaming
Major cryptocurrency exchanges often have highly skilled security teams that thoroughly test their products and services, including “red teams”. Red teaming is a proactive approach to security that is more advanced than traditional penetration testing. It attempts to breach an organization’s security from the outside and are often pitted against the “blue team,” who are responsible for defending the organization. By simulating a cyber-attack, red teams can help identify and address weaknesses in an organization’s defenses.
Reduce insider threats
Sometimes, the greatest threat to a cryptocurrency exchange or other organization that handles crypto assets and sensitive information is not an external cybercriminal or a coding error, but rather, the people within the organization itself. To protect against insider threats, it is advisable to have systems and processes in place to prevent them.
Some measures that can be help mitigate insider security threats at a crypto exchange include implementing physical keys, multi-factor authentication to access systems and applications, and conducting thorough background checks and ongoing screening for all employees. By taking these precautions, organizations can protect themselves from the potential risks posed by insiders.
Related article: Learn more about Internal Penetration Testing.
