Are Blockchains hackable?

One of the key attributes and reasons for using Blockchain technology is that it is meant to be very secure, since it uses military grade security. It has been well documented that money has been stolen from exchanges, with the biggest heist to date being Mt Gox which lost 740,000 Bitcoins. Assuming the price of Bitcoin to be $9,500, that would be valued at over $7 billion! However, by using a Blockchain to create a Digital Asset such as Bitcoin, a ‘Digital footprint’ is also created. Indeed, a Moscow-based law firm, Zheleznikov and Partners, (ZP Legal) claims that it is able to trace 170,000 to 200,000 of these stolen Bitcoins to a group of Russian nationals. So maybe all is not lost! Unfortunately, the ‘sting in the tail’ is that ZP legal is looking for a success fee of 50% to 75%!!

Source: BraveNewcoin.com

Theft of Bitcoins is one thing but getting access to confidential information or potentially being able to alter what are meant to be immutable records (thus undermining the confidence and trust in a particular Blockchain), would potentially be disastrous. It is worth bearing in mind that, unlike the ‘worldwide web’, there is not just one Blockchain. Different Blockchains operate in different ways. Some are totally decentralised, public and open to anyone (e.g. Bitcoin and Ethereum) while others are more centralised and private, with  access being granted on permissioned basis (such as JP Morgan’s Quorum Blockchain). The majority of thefts and security breaches have not, to date, been due to a Blockchain being compromised, but at the different points where the Blockchains are accessed. These areas of vulnerability include weak passwords on digital wallets or at actual crypto exchanges.

The biggest threat to public Blockchains which employ Proof Of Works is if a miner or a collection of miners are able to get control of 51% (which is also known as a double-spend attack). If a group of miners get control of 51%, they are able to spend the same assets twice, which is akin to being able to print money (just like the central banks do). This fate temporarily occurred on the Ethereum Classic Blockchain in January 2018. A miner, being able to get 51% (i.e. control of a Blockchain), can defraud other people who are using the Blockchain by pretending to send payments. The miner can then create an alternative version of the Blockchain, which is called a fork. In order to get 51% control, attackers need to have access to huge amounts of computing power, the costs of which are not insubstantial. Crypoto51 estimates that to get control of the Bitcoin Blockchain it would cost over $760,000 per hour!

Thus, all be it rare, public Blockchains are certainly vulnerable. It is for this reason that as we see more and more security tokens offerings (STO) being issued and, backed by real assets such as equities, bonds, commodities and real estate etc, STOs are likely to favour permissioned Blockchains. This may explain the popularity of JP Morgan’s Quorum-permissioned Blockchain which has already had 365 banks sign up as clients. Quorum is likely to prove even more popular once it has been spun out of JP’s clutches and merged with the undoubted Blockchain expertise within ConsenSys!