May 19th, 2021
Blockchains are storing increasing amounts of value. Many major blockchains have market caps that compete with some of the biggest companies in existence. The rise of Decentralized Finance (DeFi) has contributed to this surge in value by providing an alternative to many traditional, centralized financial systems.
Like traditional wallets, cryptocurrency wallets store the value associated with a blockchain account. However, the mechanics of these two systems are quite different. A physical wallet stores coins, cards, and bills, while a cryptocurrency wallet stores the private keys associated with a blockchain account.
The value that cryptocurrency wallets control makes them a valuable target for cybercriminals. Protecting a cryptocurrency wallet against attack is essential to retaining control over the value that it contains.
Here are four ways you can prevent your cryptocurrency wallet from getting hacked:
Knowledge of private keys equates to control over a blockchain account. Anyone with the private keys of an account can generate transactions on its behalf, and anyone without the right private keys can do nothing with an account.
One of the simplest ways to mitigate the threat of exploits to a cryptocurrency wallet is to not store private key information within the wallet. Without the private keys, access to a wallet provides minimal value to an attacker. While an exploited wallet may allow an attacker to access keys when they’re entered into in the future – like how a malicious version of Metamask enabled the recent hack of EasyFi – the risk is much greater if keys are constantly accessible to the wallet.
Cryptocurrency wallets come in a few different forms. These include online wallets, software wallets, and hardware wallets.
Regardless of the wallet type used, at some point critical information will be moving through an Internet-connected computer. This may be a private key entered in to complete a transaction, the destination address of a transaction, etc.
Malware installed on a computer may be able to steal or modify this information. For example, the system clipboard is accessible to any process running on a computer, meaning that malware can monitor it and easily change or access a copy-pasted address or private key. Running an antivirus or other endpoint security solution on a computer can help with detecting and remediating malware infections.
Many people who run a blockchain node are tinkerers. They like to play around with settings and figure out how everything works. While this is a benefit in some cases, it can cause issues for the security of cryptocurrency wallets.
A classic example of this is a hack of Ethereum users that took advantage of misconfigured blockchain software. In this case, users enabled port 8545 (which is used for JSON-RPC on mining software) but failed to place these devices behind a firewall.
This allowed attackers to scan for and remotely access this blockchain software. The attacker was able to send commands transferring the value stored in these cryptocurrency wallets to accounts under their control. In the end, over $20 million in Ether (at the time of the attack) was stolen in this way.
The ability to turn on JSON-RPC is a feature in the cryptocurrency wallet software because it allows integration between systems and the blockchain. However, features like this can create vulnerabilities that attackers will exploit. To minimize the risk of a cryptocurrency wallet being hacked, turn off all unnecessary functionality.
For those using a cryptocurrency exchange or other online wallet system, authentication changes. Instead of needing access to the private key associated with a blockchain account, an attacker only needs to know the password to the service that is storing that private key.
In most cases, this is a lot easier to guess or hack. Password security is generally awful, and phishing and other attacks can be used to steal a user’s password. Once this password is compromised, so is the security of any associated blockchain accounts.
When using a service like Binance or Coinbase, it’s vital to enable multi-factor authentication (MFA). This helps to protect these accounts and the private keys that they store against attacks by making it so that a password alone is no longer enough to log in.
While MFA can be bypassed or overcome by a variety of different means, these attacks are at least more difficult to perform than simply guessing the password associated with an account on an exchange.
The design of the blockchain makes attacks on it more permanent than with a traditional financial system. A fraudulent credit card transaction can be reversed by a bank, but cryptocurrency transactions are stored on an immutable ledger. In most cases, money lost on the blockchain is lost forever.
This makes good cybersecurity even more important in the blockchain ecosystem. Following security best practices and locking down access to cryptocurrency wallets is essential to protecting against theft.