Web3 Security: Business Risks, Attack Types, and Best Practices for Protecting Web3

Web3 Explained

Before we start exploring Web3 security, let’s take a closer look at the concept of Web3. First introduced around a decade ago, the term describes the next generation of the World Wide Web based on decentralization, blockchain technology, and token-based economics. Unlike the previous iterations of the World Wide Web — Web1 and Web2 — Web3 technology provides users with absolute control over their data and digital assets.

By transferring control over data into users’ hands, Web3 goes a long way toward improving user experience. In addition, it removes the need for intermediaries to carry out transactions, improving privacy and catering to the needs of the unbanked population.

Fundamental Concepts of Web3

Web3 is a result of the evolution of the Internet — the new World Wide Web, decentralized and owned by its users. Due to the decentralized nature of Web3, any changes or updates across decentralized applications are only possible by majority consensus. While Web1 can be defined as read-only Internet and Web2 as read-and-create Internet, Web3 tacks on an additional “own” feature, allowing users not only to contribute data but also to own it. This became possible due to some fundamental principles of Web3 technology. Let’s look at these principles more closely.

Decentralization

For a major part of the Internet’s history, web apps have been overseen by centralized entities controlling the apps’ data, meaning they could modify or delete this data whenever they want.

In Web3, web apps are stored on a decentralized, peer-to-peer (P2P) network of connected nodes. Web3 doesn’t suggest any central authority. Instead, data is visible to every node, and it can’t be removed or modified without consensus from the network.

Consensus

In Web3, new transactions and updates can be authenticated only upon a majority consensus within the network. For this, blockchains employ proof-of-work (PoW) and proof-of-stake (PoS) validation methods.

Trust

Web3 technologies utilize cryptography to ensure data can’t be modified or removed without the supporting network’s agreement. For instance, a block on a blockchain can’t be changed since its hash is recorded on the following block, so changing it will change the value of the following block, and so on. Consequently, any change triggers altering a significant portion of the blockchain. These changes may happen, but they call for broad consensus from the network before they can take place.

How Businesses Are Using Web3

Businesses are increasingly adopting Web3 today, leveraging its enormous potential for building decentralized finance applications, shifting to more resilient methods of storing data, and more.

Blockchain and decentralized applications

As mentioned earlier, data recorded on a blockchain is immutable. While one of the most common uses of blockchain is for cryptocurrency, developers can also create decentralized applications, or dApps, that leverage the blockchain to execute transactions. Utilizing cryptocurrency development services can further enhance the creation and deployment of these applications.

The logic of decentralized applications is represented by smart contracts created and stored on blockchain networks. In essence, a smart contract is a code written to perform specific functions — similar to other programmable functions, it executes upon being called.

Decentralized applications remove the burden of maintaining back-end application infrastructure from organizations since smart contracts run autonomously. Companies deploying dApps can create front-end code and user interfaces using any language to make calls to the back end. In addition, you can host the front end on decentralized storage.

Although dApps are primarily linked with finance, such as crypto wallets and decentralized exchanges, they can also be utilized for creating dApp browsers, social networks, games, and more. Engaging a crypto wallet development company can significantly enhance the development of these diverse applications.

Decentralized finance

While you can’t do without intermediaries to send or receive money when using traditional financial services, decentralized finance (DeFi) allows its users to trade directly with one another, with smart contracts doing the job of settling trades and ensuring that the process is trustworthy and fair. DeFi provides its users with the same range of opportunities as the traditional banking system — for example, taking out loans, trading cryptocurrencies, and making interest.

Distributed and decentralized storage

Besides blockchain, businesses use the Interplanetary File System (IPFS), a distributed system used to store and access files, websites, applications, and data. While the HTTP protocol only guides the user toward a location, usually a single server, the P2P nature of IPFS enables you to simultaneously retrieve multiple pieces of content from different nodes. This results in considerable bandwidth savings and faster connectivity.

In addition, IPFS ensures complete decentralization that translates into data availability without depending on any of the companies that own web servers and can subsequently restrict access to your data.

sLast but not least, IPFS offers an advanced level of data security by implementing two solid measures that prevent hackers from tampering with data or files. The first one is immutability, which makes all data unchangeable; the second one is a hash attached to each file. The hash is like a fingerprint unique to that particular file only. Users can compare a hash they search for against the hash code they get to make sure they’ve received the right file.

Organizations can use IPFS to serve content to their users in a secure, trustworthy way, while the latter can leverage IPFS to publish their content from their environments.

The Biggest Security Risks of Web3

While cutting-edge Web3 technologies are disrupting the way we interact with the web, they are also associated with some novel security issues. And although the new web has proved more secure than Web2, it still does pose some risks, just like any other state-of-the-art technology.

Smart contract hacking

Similar to any code, a smart contract can have security flaws likely to jeopardize user data or funds. Threat actors can exploit vulnerabilities in smart contracts to gain control over code execution and steal funds, remove data, or change the rules the smart contract has been programmed to apply, highlighting the critical importance of robust smart contract development practices in ensuring security and integrity within blockchain ecosystems.

Insufficient encryption and verification for API queries

In many cases, Web3 applications rely on API calls and responses that don’t validate the ends of the connection. Although the new iteration of the web is decentralized, the Web3 front ends often use Web2 technology. The latter applies API queries to the Web3 back end to empower business logic. As of today, plenty of Web3 API queries aren’t signed cryptographically, meaning they remain vulnerable to attack.

Privacy concerns

All connected nodes have access to data stored on a blockchain, which can translate into major security and privacy concerns depending on what kind of data is stored.

Crypto theft

Cryptocurrency exchange and non-fungible tokens (NFTs) hold great interest for cybercriminals who can attack crypto wallets. However, most attackers get access to users’ digital assets through the users’ private keys, either obtained by phishing or stolen physically.

Protocol attacks

Web3 isn’t entirely built on blockchain. Like the Internet, which is composed of several layers, blockchain has protocols on top of it, such as a bridge, a protocol that enables transfers from one blockchain to another. These protocols are vulnerable to hacker attacks.

Slow-moving updates

While the decentralized nature of Web3 provides enormous advantages for creating a trustful environment with no central authorities, it can significantly slow down the process of fixing security issues. As mentioned earlier, Web3 is based on a decentralized network consensus, with any changes requiring the agreement of most network participants.

It’s safe to assume that this is the most significant security challenge facing Web3 users. Creating 100% secure applications is hardly possible, and the limited ability to promptly fix issues increases the attack surface of Web3 applications.

Common Web2 Risks

Threat actors can exploit Web3’s front-end vulnerabilities, which are similar to attack vectors typical of Web2 front ends. Bots, code injection, API attacks, etc., all have the potential to put Web3 security at risk.

Web3 Security: Most Common Attack Types

APT operations

An Advanced Persistent Threat (APT) refers to a campaign in which attackers establish an illicit presence on a network to mine highly sensitive data. APTs can run different types of operations, but most often, they directly attack the network layer of organizations to achieve their goals. As of today, several groups are steadily targeting Web3 projects. Most individuals responsible for the most devastating APTs reside in countries that don’t have extradition treaties with the USA and EU, which makes prosecuting them almost impossible.

Supply chain vulnerabilities

Third-party software libraries add extra attack vectors to Web3 applications. Given that reality, imported code should be thoroughly monitored for vulnerabilities and updated on time.

User-targeted phishing

Phishing attacks had been around before the advent of Web3. Phishing is when an attacker sends a message crafted to trick an individual into revealing their sensitive data or to deploy malicious software on the user’s infrastructure. Web3 allows people to directly trade digital assets, which makes Web3 users an attractive target for phishers.

Governance attacks

In the Web3 world, many projects involve a governance aspect, which allows token holders to support proposals to alter the network by voting. Although this offers a solid foundation for continuous improvement, it also creates an opportunity to bring forward malicious proposals that may adversely affect the network. Attackers can take out large flash loans to swing votes. Governance votes that trigger the automatic execution of proposals aren’t hard for attackers to exploit, and if proposal enactment requires manual sign-off from many parties, it can be more difficult to pull off.

Pricing oracle attacks

A range of Web3 projects leans on oracles, systems providing real-time data. Oracles are a source of data that can’t be located on-chain and often help to find out exchange pricing between two assets. Unfortunately, attackers have developed methods to trick oracles. However, the standardization of oracles can create safer bridges between off-chain and on-chain environments, making the crypto market more resilient to attacks like these.

Best Practices for Protecting Web3 Applications and Infrastructure

API query/response encryption

Massive adoption of Transport Layer Security (TLS) for HTTP requests and responses once brought Web2 security to a brand-new level. Likewise, introducing encryption and digital signing of API queries and responses into Web3 applications can effectively protect application data.

WAF and other Web2 security practices

The modern business ecosystem has already accumulated valuable experience tackling Web2 security issues. The tried-and-true ways to protect user accounts, prevent code injection, etc. — web application firewalls (WAFs), API security measures, and bot management — can go a long way toward shielding Web3 applications from attacks.

Thorough code auditing

One of the most effective ways to ensure the security of a Web3 solution and check if it is protected against possible attacks is to audit the code before deployment. Independent auditors thoroughly examine the code to identify vulnerabilities and give recommendations on eliminating flaws or threats.

What’s Next?

While exploring and adopting Web3, businesses need to pay particular attention to security, since security issues can lead to dramatic financial and reputational losses.

The team at EvaCodes provides professional assistance in ensuring the ultimate security of every Web3 project. Whether you are looking to build a secure Web3 application or need a reliable partner for smart contract auditing services, experienced Web3 developers at EvaCodes have you covered.