#HowTo: Secure On-Chain Data

Due to their unique design, which makes them resistant to hacking and data manipulation, blockchains are frequently praised for their security. Despite this, blockchains can be abused in various ways, as no system is completely impenetrable. 

The challenge of maximizing data security in a highly transparent setting is specific to public blockchains. Public blockchains are far from perfect, and there are several ways that malicious parties might take advantage of them.

On top of blockchain networks like Ethereum, developers use Web3 programming to create decentralized applications (dapps), DeFi platforms and other Web3 initiatives. Blockchains, which hold a complete record of a network’s transaction history, are essentially digital public ledgers. Additionally, this openness gives Web3 developers access to ‘on-chain data.’ This blog will explore on-chain data’s complexities in more detail and explain how to secure them.

The Fundamentals of On-Chain Data

Comparing on-chain data to off-chain data is crucial in comprehending on-chain data in its entirety. Here’s a quick primer. Blockchains as a structure are used to store data on a distributed ledger as append-only state machines. This means that while state modifications are visible to all, they are also irreversible. On-chain data describes parts of the ledger that are publicly accessible. These parts include hashed public keys and transaction data (wallets). Since these networks are transparent, anybody may access this information and, if necessary, query on-chain data.

Whether developing an NFT marketplace or a Web3 wallet, it is advantageous to have access to real-time on-chain data. In fact, on-chain data is advantageous for all Web3 projects as people begin to use their Web3 wallets to identify themselves to others. These wallets are digital personas that share our preferences, worldview, morals and trade or purchase history. This transparency is one of the appealing aspects of blockchains and the products they enable. But while users find this transparency enticing to build a portable online profile, hackers too find it useful for the purposes of exploitation.

The challenge of maximizing data security in a highly transparent setting is specific to public blockchains. It is difficult to change a single record in blockchain data because a hacker would need to change the block that contains that record and all records linked to it to avoid being discovered. This is due to the decentralized nature of blockchain data. 

What is Off-Chain Data?

Off-chain data refers to network elements that are not accessible to the general public, including secret transactions, oracle data and more. Here, the same immutability and openness of on-chain data that attracts users present particular security difficulties for Web3 applications. In Web2, corrupted database states could simply be rolled back and reconfigured from a clean state, but due to the immutability of blockchains, this is generally* not possible. 

Defense Mechanisms

One of the primary drawbacks of blockchain is data privacy. Regardless of whether a blockchain is a consortium, private or public, there is no privileged user within the network. Participants in the blockchain network have access to all the data on a blockchain. But a case can be made for sensitive data, such as medical records, only being accessible to relevant individuals. In contrast, users not associated with this specific data are locked out. On a public blockchain, new users can join the network at any time and have free access to all the data stored there. So, how do we actively secure the privacy of on-chain data? 

First, it begins with users protecting their own on-chain data. The new generation of crypto investors will do well to start curious, gain expertise and then do independent research in the industry. There are countless distinctive cryptocurrency projects and use cases and many excellent, free online learning materials. Even if it’s intimidating, the secret to sustaining and retaining digital assets is understanding the entire process of using a ledger (hardware wallet). 

The second step is data encryption. Personal data that needs to be kept private shouldn’t be placed on a blockchain, at least not in plain-text form, as everything on a blockchain is accessible to everyone on the network. Data can be encrypted before being added to the blockchain as transactions to protect the privacy of the interested parties. 

The third defense mechanism is built into blockchains themselves. The two most common are proof-of-stake and proof-of-work. 

Proof-of-work was designed partly to make it difficult and expensive for attackers to replace the original version of the blockchain with their own version. However, difficult does not mean impossible. One attack vector for this type of consensus mechanism is a ‘51% attack.’ Here, an attacker can take control of the blockchain if they have 51% or more of the network’s hash rate. A decentralized system must accept the uncomfortable but inevitable reality of 51% of assaults. If a system is based on a majority vote, it is controlled by the attacker who receives the most votes. Any countermeasure to a 51% assault begins to centralize the system.

Making 51% of assaults prohibitively expensive and difficult to execute is the strongest defense against them. To do this, a Proof of Work network must amass sufficient hashrate such that it would be impossible for an attacker to buy the bulk of the network’s processing power. This has the advantage of maintaining confidentiality because the publicly available data on the blockchain is encrypted, making it impossible for anybody without a secret key to decipher the data.

A suggested substitute for Proof of Work is Proof of Stake. Proof of Stake, like Proof of Work, aims to achieve consensus, choosing one network participant to add the most recent batch of transactions to the blockchain in exchange for payment in cryptocurrency. The proof-of-stake system was created to solve issues with scalability, energy use and environmental effect. 

In Proof of Stake, validators are chosen according to the number of tokens they own on the theory that since they are “staking” themselves to the token’s value, they have a stake in maintaining the network’s reliability. Therefore, Proof of Stake transactions need substantially less energy and complete transactions much faster. Without the excessive energy costs associated with Proof of Work approaches, the continuous blockchain may be validated more quickly and effectively.

Looking Ahead, The Future of Crypto Security 

Blockchain security is quickly advancing to the forefront of consumers and industries alike. As a result, numerous businesses are attempting to create a secure ecosystem for the cryptocurrency industry, and more alternatives will soon be available when considering security solutions. 

In the near future, more businesses will provide security solutions, such as smart contract audits, as a thorough procedure to examine the code of a smart contract that interacts with a cryptocurrency or blockchain. Platforms like Ethereum, Solana, Algorand and others use this approach to find flaws, problems and security vulnerabilities in the code and repair them. It protects the code from potential flaws in the future.

Yet, despite advancements in blockchain security, we currently live in an awkward time with a high experimentation factor and few security options. Here, early adopters and ambitious businesses who successfully navigate the pitfalls will keep reaping the benefits of this emerging technology. Meanwhile, every aspect of our life will begin to be impacted by blockchain technology, from finance to healthcare and beyond. This technology has had a big influence on the cybersecurity sector and will continue to evolve into the future.

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