Web3 is a decentralized version of the internet gaining popularity worldwide. It brings new opportunities for communication, business and entertainment. Blockchain introduces a new brand of economic system, a new generation of games and social media. Web3 development is growing rapidly. For example, the number of active blockchain wallets has increased by 639%, and there has been a significant growth in the number of active GamFi users.
However, Web3 technology still remains IT-based, which means it has its own vulnerabilities that need to be addressed. It is essential to understand and address these vulnerabilities to provide the security of Web3 solutions.
Read this article and find out about the top 10 Web3 vulnerabilities, their challenges, and solutions to help businesses protect themselves from potential attacks.
Let’s start from the beginning. Web3 refers to the next generation of the internet that is decentralized, making it totally different from Web2. In Web3, the client-server model is replaced by a distributed one. It’s main principles are:
Decentralization. The whole global system’s not controlled by a single company. Instead, it consists of a network of nodes working together. In this way, they maintain the integrity, efficiency and security of Web3.
Blockchain technology at the core. This is a distributed database shared among a computer network's nodes. Blockchain ensures security and transparency while storing and transferring data.
Smart Contracts.They are self-executing contracts with embedded terms of the agreement between two addresses. This kind of agreement’s directly written into the code. Smart contracts automate transactions and reduce the services of interceders.
Web3 is designed to be interoperable. It means that it can work with other networks and protocols. Developers can build a crypto project that directly interacts with other applications and even networks.
Finally, Web3 users can create non-fungible tokens, which can represent assets and currencies.
These fundamentals of Web3 are boosting the adoption of decentralized solutions and improving the way businesses operate with customers.
In the B2B sector, Web3 is improving the way businesses operate. Moreover, for Web3 builders, product managers, and C-level executives, the adoption of Web3 technologies can be a new opportunity to scale their capacities.
Web3 technologies let create decentralized applications that offer user-centric experiences. Users can now have full control over their data, identities, and digital assets.
Smart contracts automate and streamline complex business processes and reduce costs. For example, supply chain management can be improved by using smart contracts. They track and verify the authenticity of products, their logistics etc.
Web3 increases interoperability among platforms and ecosystems. Through blockchain protocols, businesses securely connect and share data, thereby leveling up the efficiency of the connection.
Through peer-to-peer transactions, borderless payments with cryptocurrencies and accessibility for the unbanked, the technology helps reaching customers worldwide. There’s no more traditional banking systems and international money regulations.
In general words, the benefits of Web3 for businesses are exceptional. They help create secure websites and transactions, new revenue streams and build lasting relationships.
Below you’ll find top 5 use cases of the technology’s adoption:
As you see, businesses can enhance trust, security, and transparency in their interactions. Also, they’re exploring new ways for value creation and revenue generation.
Web3 might look like an invincible creature. However, as with any IT-based product, it’s susceptible to software bugs, security issues, and other vulnerabilities. They may represent traditional risks to businesses that may lead to the economic impact, data breaches, and reputational damage. Malicious actors can exploit these vulnerabilities to compromise websites, leak data, infect databases, and conduct injection attacks.
Moreover, the nature of Web3, with its reliance on network consensus and decentralized architecture, introduces new security challenges. It makes it important for businesses to understand and address these vulnerabilities to protect dApps and users’ assets.
So, the weak points are:
Understanding these potential issues is important for building secure and resilient businesses in the Web sphere.
Except for the precise vulnerabilities, the essence of Web3 may be concidered as an obstacle while establishing centralized security measures. It operates on a distributed network, making it difficult to implement comprehensive protective measures across all nodes.
Moreover, the complexity of smart contracts poses a challenge. Written in code, they are vulnerable to Web3 bugs and loopholes that may go unnoticed until triggered.
Another challenge lies in the lack of regulation within the Web3 ecosystem. As it continues to evolve, there are not enough accepted frameworks. This creates an environment where security practices and protocols vary. They may cause inconveniences during the establishing interconnections and may bring significant expenses.
Furthermore, Web3 technology introduces new attack vectors that were not present in previous iterations. Novel exploits emerge as new protocols, web3 libraries, platforms, and applications are developed.
So, addressing Web3 vulnerabilities is a complex task that generally requires strong security measures and collaboration.
Unfortunately, the industry has significantly suffered from the imperfection.
Wormhole Bridge Hack
In February 2022, the Wormhole bridge, a cross-chain communication protocol, was exploited to steal $326 million in cryptocurrency. The attackers manipulated the bridge's vulnerable code to mint a large number of tokens and then exchanged them for other cryptocurrencies.
An individual utilized web3 hacking tools against the DeFi protocol Beanstalk Farms and stole $182 million. They used a flash loan attack to manipulate the protocol's pricing mechanism and then run off with a large amount of its native token.
The Nomad bridge, another cross-chain communication protocol, has lost $190 million. The attackers used a similar technique to the Wormhole hack. Then they minted a large number of tokens and then exchanged them for crypto.
The decentralized exchange Mango Markets has suffered losses by $114 million. The criminals used a combination of techniques to drain the DEX's liquidity pool.
The DeFi protocol Rari Capital was exploited to steal $150 million. The perpetrators employed a comparable method to the Beanstalk hack, exploiting the protocol's pricing mechanism to get its native token.
As the Web3 ecosystem continues to grow, it is likely that we will see even more damaging attacks. It is therefore essential for developers and users to take steps to create efficient systems that protect themselves from these threats.
So, what should a business do to avoid becoming a victim of hackers? Reducing Web3 vulnerabilities requires an approach that involves integrating security governance, analysis, and following security-by-design principles.
Here are some additional solutions to fix Web3 vulnerabilities:
By implementing these solutions and best practices, businesses can prevent the Web3 security breach and protect their products and users.
The evolution of Web3 technologies brings both benefits and challenges. Ice phishing, cryptojacking, smart contract logic hacks, and data manipulation in dApps, underscore the need for innovative security measures within the Web3 ecosystem.
There are already best practices that should be implemented to avoid unpleasant consequences. Secure coding, regular code audits, and ongoing security monitoring can help reduce vulnerabilities.
As Web3 companies move forward, it’s important for developers, auditors, and users to remain vigilant, stay informed about threats, and implement robust security measures to safeguard the integrity and functionality of Web3 applications. This stance towards Web3 security will be contributory in nurturing trust, boosting innovation, and realizing the full potential of blockchain.
It looks like Web3 is still vulnerable and represents some specific Web3 limitations. The total losses in DeFi are over $7 billion in 2023. This is still a high number in the Web3 market. Even though lately figures have decreased, hacks of a different kind and scale happen regularly. But the security systems continue to evolve, blocking paths for attackers.
Decentralization means there is no single point of control, which naturally creates a significant security challenge. A Web3 platform is made up of multiple nodes, and each node could potentially be a point of vulnerability if not adequately secured. This increases the attack in Web3 dramatically.
Web3 users require digital wallets to store and manage cryptocurrencies. However, wallets are exposed to phishing, rug pulls, malware, and social engineering. Therefore, users must practice strong security measures, including enabling two-factor authentication. On the other hand, developers should practice secure coding, regular audits, timely updates, and continuous monitoring.
Layer 3 protocol attacks consist of Internet Protocol, packet sniffing and DoS attacks i.e. ICMP attacks or ping of death. These types of attacks can be performed remotely. To reduce the risk of these types of attacks, packet filtering controls should be used.