Risk review: Exploits in the world of cryptocurrency
Cryptocurrency, known as a revolutionary and disruptive force in finance, is not without its vulnerabilities. Exploits, a term familiar to the cybersecurity world, have found their way into the realm of digital currencies. This review will explore what exactly exploits are, the various forms they take, and how Coincover can help mitigate the risks of an exploit.
Understanding cryptocurrency exploits
Cryptocurrency exploits refer to malicious actions or vulnerabilities that are leveraged by attackers to gain unauthorised access, manipulate, or steal digital assets. These exploits can manifest in several ways, affecting different aspects of the cryptocurrency ecosystem.
Types of cryptocurrency exploits
Smart contract exploits:
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. Exploits in smart contracts often arise from vulnerabilities in the code, allowing attackers to steal funds or disrupt the contract’s intended functionality. The most famous example is the DAO (Decentralised Autonomous Organisation) hack in 2016, which resulted in the theft of millions of Ether.
Cryptocurrency exchanges are prime targets for exploits due to the concentration of assets. Hackers may exploit vulnerabilities in exchange platforms to steal user funds, execute unauthorized trades, or manipulate prices. Notable incidents include the Mt. Gox hack and the Coincheck hack.
Some blockchain networks, especially those with Proof of Work (PoW) consensus mechanisms, are susceptible to 51% of attacks. In this scenario, a malicious actor or group controls over 50% of the network's hashing power, enabling them to double-pend coins or disrupt the network’s operation.
Phishing exploits involve tricking users into revealing their private keys or sensitive information through deceptive websites, emails, or social engineering tactics. Unsuspecting victims may unknowingly give attackers access to their cryptocurrency wallets.
Rug pulls and pump-and-dump schemes:
In the DeFi space, rug pulls involve developers abandoning projects after attracting significant investment, causing token values to plummet. Pump-and-dump schemes manipulate token prices by inflating them artificially before selling them off, leaving investors with worthless assets.