Smart Contract Attacks: The Most Memorable Blockchain Hacks of All Time

Paulina Lewandowska

30 Dec 2022
<strong><noscript><img class=

Due to their ability to automate financial procedures and transactions, smart contracts have the potential to completely change the way we conduct business. They are not impervious to security flaws, though, as is the case with other technologies. There have been a number of smart contract hacks in the past that have caused large losses and damaged the community's confidence. The most famous smart contract hacks ever will be covered in this article, along with the lessons that may be drawn from them. These incidents—from the DAO hack to the Bancor hack—have had a long-lasting effect on the blockchain sector and serve as reminders of the value of properly safeguarding smart contracts.

The DAO hack

A decentralized venture capital fund for the cryptocurrency and decentralized technology industries was one of the goals of the Decentralized Autonomous Organization, or DAO. Its decentralized architecture was designed to cut expenses while giving investors more power and access. The DAO was designed to run decentralized, relying on the collective judgment of its investors.

A flaw in the coding of The DAO, a smart contract on the Ethereum blockchain, was found by a hacker on June 17, 2016. This gave the attacker the ability to ask the contract to send money to them repeatedly, leading to the theft of 3.6 million ETH, which was then valued at about $70 million. Due to two flaws in the contract's architecture, the exploit was made possible: a mechanism that first transmitted the ETH and then modified the internal token balance was not designed to account for the possibility of repeated calls.

A flaw in the coding of The DAO, a smart contract on the Ethereum blockchain, was found by a hacker on June 17, 2016. This gave the attacker the ability to ask the contract to send money to them repeatedly, leading to the theft of 3.6 million ETH, which was then valued at about $70 million. Due to two flaws in the contract's architecture, the exploit was made possible: a mechanism that first transmitted the ETH and then modified the internal token balance was not designed to account for the possibility of repeated calls.

The Veritaseum hack

A cryptocurrency called Veritaseum was introduced in 2017. A cyberattack at Veritaseum in April 2018 cost the company the equivalent of $8.4 million in cryptocurrencies.

The Veritaseum cryptocurrency's smart contract had a flaw that allowed for the hack to take place. By using a reentrancy attack, the flaw allowed an attacker to siphon money from the Veritaseum smart contract. In a reentrancy attack, an attacker can run a smart contract's function repeatedly before the state of the contract is changed, allowing the attacker to remove money from the contract before the state is updated to reflect the withdrawal.

The Veritaseum attack served as a reminder of the value of properly protecting smart contracts as well as the possible dangers of employing them. It also emphasized the necessity of rigorous testing and auditing of smart contracts to make sure they are safe and without flaws.

The Bancor hack

On the Ethereum blockchain, the Bancor network is a decentralized exchange that enables users to purchase and sell a range of different cryptocurrencies. The Bancor network was hacked in July 2018, and as a result, about $12 million worth of cryptocurrency was lost.

The hack was conducted by taking advantage of a weakness in the smart contract that controlled the Bancor network. Due to a vulnerability, an attacker was able to take over the Bancor contract and steal money from it. In order to stop more losses, the Bancor team was able to react to the attack promptly and halt trading on the site.

The Bancor attack served as a reminder of the value of properly protecting smart contracts as well as the possible dangers of employing them. It also emphasized the necessity of rigorous testing and auditing of smart contracts to make sure they are safe and without flaws.

Hacks in DEFI

Decentralized finance (DeFi) projects benefit greatly from smart contracts since they enable automated, self-executing financial processes and transactions. They are used to speed up, confirm, and enforce contract negotiations and performance.

Because smart contracts can be used to enable a variety of financial transactions and handle large quantities of money, smart contract security is crucial in DeFi projects. If a smart contract is not adequately protected, attackers may leverage its flaws to steal money from it or engage in other forms of contract manipulation. Users of the DeFi project may suffer large losses as a result, and the initiative's credibility and dependability may be harmed.

The bZx hack

A decentralized finance (DeFi) platform called bZx enables users to utilize smart contracts to borrow and lend cryptocurrency. bZx experienced two different attacks in February 2020 that took use of holes in its smart contracts.

On February 14, 2020, a hacker used a flaw in the bZx smart contract to steal about $6 million worth of cryptocurrency. This was the first theft. On February 18, 2020, a fresh vulnerability in the bZx smart contract was used by a different hacker to steal an additional $350,000 worth of cryptocurrency.

The bZx hacks were caused by flaws in the bZx smart contracts, which let attackers take advantage of them and steal money from them. The intrusions served as a reminder of the value of properly protecting smart contracts as well as the possible dangers of employing them. To ensure the security and lack of vulnerabilities in their smart contracts, DeFi projects must thoroughly test and audit them.

The Harvest Finance hack

The Harvest Finance hack was a security issue that happened in October 2020. An attacker used a smart contract weakness to steal cryptocurrencies valued at about $24 million. A decentralized finance (DeFi) technology called Harvest Finance enables users to generate yield by supplying liquidity to various financial marketplaces.

The hack happened when a perpetrator drained funds from the Harvest Finance smart contract by taking advantage of a flaw in it. Due to a vulnerability, the attacker was able to alter the contract and withdraw money from it without setting off the security features. The Harvest Finance team was able to stop trading on the platform to stop more losses after the hack was identified many hours after it happened.

The Akropolis hack

The Akropolis decentralized finance (DeFi) platform was attacked on November 12, 2020, when a protocol flaw resulted in the loss of about 2,030,841.0177 DAI from the impacted YCurve and sUSD pools. The problem was caused by a bug in the platform's SavingsModule smart contract's handling of the deposit logic, which gave the attacker the ability to create a significant number of pool tokens without the support of valued assets. This happened because the protocol did not correctly impose reentrancy protection on the deposit logic and validate supported tokens. Users of the Akropolis platform experienced severe disruption and losses as a result of the Smart Contract Hacks.

Conclusion - Smart Contract Hacks

One cannot stress the significance of properly safeguarding smart contracts. Smart contracts are capable of handling large quantities of value and a variety of financial activities. If a smart contract is not properly secured, it may cause consumers to suffer large losses and jeopardize the project's legitimacy and dependability.

Because of this, it is crucial that smart contracts undergo extensive testing and auditing. Smart contracts can be made secure and fault-free with the aid of testing and auditing. It is an essential stage in the creation process and can aid in safeguarding the security of blockchain projects and ensuring their smooth operation.

Most viewed


Never miss a story

Stay updated about Nextrope news as it happens.

You are subscribed

Authorization and Identity: Chainlink Use Cases

Karolina

14 Feb 2024
Authorization and Identity: Chainlink Use Cases

Chainlink stands at the forefront of enhancing security and compliance within smart contract-enabled blockchain networks. By enabling direct access to real-world data, Chainlink ensures that blockchain applications can operate with the same level of trust and verification as traditional systems. This integration is crucial for a wide range of applications, from financial services requiring Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance to any form of digital agreement that needs to securely verify the identity of parties involved.

Overview

Chainlink is a decentralized oracle network that plays a critical role in bridging the gap between smart contracts on blockchain networks and real-world data. It enables smart contracts to securely interact with external data.

  • Decentralized Data Oracles. Chainlink's network of decentralized oracles ensures that data fed into smart contracts is accurate and tamper-proof, mitigating risks associated with relying on a single data source.
  • Smart Contract Connectivity to Real-World Data. It facilitates the seamless integration of external data sources, such as financial market data, weather information, and much more, enabling smart contracts to execute based on inputs from the real world.
  • Chainlink VRF (Verifiable Random Function). This feature provides a secure and provably fair source of randomness for blockchain applications, crucial for gaming, NFTs, and any application requiring random number generation.

READ: "What is Chainlink"

When it comes to authorization and identity verification, Chainlink's role becomes even more crucial. By connecting smart contracts with external data sources, such as governmental identity databases or digital identity verification services, Chainlink enables the creation of blockchain applications that require verified human identities. This capability is essential for applications that must adhere to regulatory standards or for those seeking to mitigate the risk of fraud.

Moreover, Chainlink's decentralized nature ensures that the process of identity verification is not only secure but also resistant to manipulation. By leveraging multiple independent oracles to fetch and validate data before it's provided to a smart contract, Chainlink ensures a level of reliability and trustworthiness that centralized data sources cannot match. This decentralized approach to authorization and identity verification opens up new possibilities for blockchain applications, making them more accessible, compliant, and secure for users around the globe.

The integration of Chainlink's decentralized oracle network into the domain of authorization and identity verification heralds a new era of security, efficiency, and compliance for blockchain applications. By leveraging real-world data and external verification services, Chainlink enables smart contracts to perform functions that were previously unthinkable in the blockchain space. Here, we explore several key use cases where Chainlink's technology significantly impacts authorization and identity verification processes.

E-Signatures

In the digital age, e-signatures have become the norm for legally binding agreements, eliminating the need for physical presence or paper-based documents. Chainlink oracles facilitate the integration of blockchain applications with leading e-signature providers like DocuSign. This integration ensures that e-signatures can be verified and recorded on the blockchain, providing immutable evidence of agreement and authorization. Furthermore, by enabling smart contracts to interact with e-signature solutions, Chainlink opens the door to automated contract execution based on the completion of digitally signed agreements, thereby streamlining business processes and reducing the time and cost associated with manual verification.

Biometrics for Smart Contract Authorization

Unstoppable Domains uses Chainlink oracles to enable users to tie their off-chain Twitter identity to their on-chain Ethereum domain name (Source: chain.link)

Biometric verification offers a high level of security and convenience for identity verification, leveraging unique physical characteristics such as fingerprints or retinal patterns. Chainlink enables smart contracts to securely access and verify biometric data, ensuring that only authorized individuals can trigger certain actions on the blockchain. This use case is particularly relevant for access control systems, secure transactions, and identity verification processes that require a high degree of trust and security. By connecting smart contracts with biometric databases and verification services through Chainlink oracles, blockchain applications can achieve a new level of security and fraud prevention.

Credential Verification

Credential verification is crucial in numerous applications, from financial transactions requiring proof of funds to access systems demanding specific security clearances. Chainlink oracles play a pivotal role by securely relaying credential verifications from external systems to the blockchain. This capability allows smart contracts to automatically verify users' credentials in real-time, facilitating seamless transactions and interactions that require verified identity or authorization credentials. For example, a decentralized finance (DeFi) platform can use Chainlink to verify a user's creditworthiness or asset ownership before allowing them to participate in lending or borrowing services.

Social Media Identity and Domain Names

The integration of social media identities with blockchain applications enhances user experience by providing more intuitive and human-readable identifiers, such as domain names or social media handles. Chainlink oracles facilitate this by securely linking off-chain social media identities to on-chain addresses or domain names. This use case not only improves the usability of blockchain applications but also adds an extra layer of verification, as users can easily confirm the authenticity of the parties they are interacting with.

Intellectual Property Management

Chainlink's decentralized oracle network enables smart contracts to interact with external IP databases for verifying ownership and facilitating transactions related to intellectual property (IP). This application is particularly useful for copyright and trademark management, patent licensing, and royalty distribution. By automating IP verification and transactions through Chainlink, creators and owners can more efficiently manage their rights and receive payments, while users gain access to verified IP assets.

Contribution Bounties in Open Source Projects

Open-source projects can leverage Chainlink oracles to automate the verification of contributions and the distribution of bounties. By connecting smart contracts with public code repositories like GitHub, Chainlink allows projects to automatically track contributions, verify the fulfillment of predefined conditions, and release payments to contributors. This application streamlines the contribution process, incentivizes open-source development, and ensures that contributors are fairly compensated for their work.

Conclusion

Chainlink significantly impacts blockchain, enhancing security and compliance, especially in authorization and identity. It bridges real-world data with blockchain, ensuring trust and wider adoption. As blockchain evolves, Chainlink's innovations promise a more inclusive digital future. Its key role in securing and streamlining blockchain applications marks a crucial step forward for digital interactions. Chainlink is pivotal for a secure, compliant, and efficient blockchain ecosystem, shaping the future of digital transactions.

If you are interested in utilizing Chainlink or other blockchain-based solutions for your project, please reach out to contact@nextrope.com

Chainlink vs. Avalanche: Exploring the Blockchain Frontier

Karolina

13 Feb 2024
Chainlink vs. Avalanche: Exploring the Blockchain Frontier

Chainlink emerges as the bridge between the real world and the blockchain. On the other side, Avalanche flashes through the blockchain space with a lightning speed platform that promises scalability without compromise. Both are revolutionaries in their own right, yet their paths are markedly different. Chainlink's quest to secure the integrity of off-chain data in a decentralized manner contrasts with Avalanche's mission to redefine blockchain's scalability and usability. But what happens when these paths intersect?

Overview

Chainlink is a decentralized oracle network that plays a critical role in bridging the gap between smart contracts on blockchain networks and real-world data. It enables smart contracts to securely interact with external data.

  • Decentralized Data Oracles. Chainlink's network of decentralized oracles ensures that data fed into smart contracts is accurate and tamper-proof, mitigating risks associated with relying on a single data source.
  • Smart Contract Connectivity to Real-World Data. It facilitates the seamless integration of external data sources, such as financial market data, weather information, and much more, enabling smart contracts to execute based on inputs from the real world.
  • Chainlink VRF (Verifiable Random Function). This feature provides a secure and provably fair source of randomness for blockchain applications, crucial for gaming, NFTs, and any application requiring random number generation.

READ: "What is Chainlink"

What is Avalanche?

Overview

Avalanche is a highly scalable blockchain platform designed for decentralized applications (dApps) and custom blockchain networks. It distinguishes itself with its emphasis on scalability, speed, and eco-friendliness.

Key Features of Avalanche

  • High Throughput and Low Latency. Avalanche boasts a high transaction output rate with low latency, making it an ideal platform for scaling dApps and financial solutions.
  • Eco-friendly Consensus Mechanism. Unlike proof-of-work (PoW) systems that require significant energy expenditure, Avalanche uses a novel consensus mechanism that is energy-efficient, contributing to a more sustainable blockchain ecosystem.
  • Scalability and Interoperability. The platform supports the creation of multiple custom blockchains that can interoperate seamlessly, facilitating a diverse and scalable ecosystem of applications.

READ: "Avalanche’s Investment in Real-World Assets Tokenization"

As blockchain technology continues to evolve, understanding the nuances between different platforms and solutions like Chainlink and Avalanche becomes increasingly important. Here's how these two blockchain giants stack up against each other:

Underlying Technologies and Architectures:

  • Avalanche utilizes a unique consensus protocol known as Avalanche consensus, combining the benefits of classical consensus algorithms with the decentralized nature of blockchains. This protocol allows for high throughput, quick finality, and energy efficiency.
  • Chainlink, on the other hand, is not a blockchain but a decentralized network of nodes that provide data to blockchain networks. It uses a network of independent node operators who are incentivized to provide accurate data to smart contracts.

Consensus Mechanisms:

  • Avalanche employs a Proof of Stake (PoS) model designed to be lightweight and energy-efficient. Validators participate in reaching consensus by staking AVAX tokens, contributing to the network's security and governance.
  • Chainlink does not use a consensus mechanism in the same way a blockchain network like Avalanche does. Instead, it relies on a decentralized network of oracles to validate and relay data, ensuring the integrity of information provided to smart contracts.

Chainlink is best suited for applications that require secure, reliable, and tamper-proof data inputs from the real world. This includes:

Avalanche is optimized for a wide range of blockchain applications needing high throughput, quick finality, and scalable infrastructure, such as:

  • Scalable DeFi platforms and DEXes.
  • Enterprise blockchain solutions.
  • Custom blockchain networks (subnets).

Examples of Real-World Applications and Partnerships:

  • Chainlink has partnered with Google Cloud for cloud data integration and with numerous DeFi platforms like Synthetix and Aave for price feeds and randomness.
  • Avalanche has formed partnerships with Deloitte for enhancing security and speed in disaster relief platforms and with top DeFi protocols to build on its highly scalable network.

Ecosystem and Community

Development Community and Ecosystem Support:

  • Both Chainlink and Avalanche boast robust and active communities. Chainlink's community is highly engaged in developing external adapters and securing data for smart contracts. Avalanche's community focuses on developing dApps and custom blockchain networks.

Tools, Resources, and Support:

  • Chainlink offers extensive documentation, a vibrant developer community, and grants for projects integrating Chainlink's technology.
  • Avalanche provides developers with comprehensive resources, including tutorials, technical documentation, and funding for ecosystem growth through the Avalanche Foundation.

Tokenomics and Market Performance

  • LINK (Chainlink's token) is used to pay for services within the Chainlink network, including data requests to oracles. It incentivizes node operators to provide accurate data.
  • AVAX (Avalanche's token) serves as the native currency within the Avalanche network, used for transaction fees, staking, and governance.
  • In terms of market performance, both LINK and AVAX have shown significant growth and adoption, reflecting their utility and the demand for their respective network's services. However, their performance can vary based on overall market trends, technological advancements, and adoption rates in their specific use cases.

LINK vs AVAX

Potential for Integration

The potential for integration between Chainlink oracles and Avalanche’s blockchain platform is substantial. Chainlink’s decentralized oracles can provide Avalanche-based applications with secure and reliable real-world data, enhancing the functionality and scope of Avalanche’s already fast and scalable blockchain. This integration can benefit a wide range of applications, from DeFi and insurance to gaming and prediction markets, by providing them with the essential data needed to operate effectively and transparently.

Conclusion

Chainlink and Avalanche, while serving distinct purposes within the blockchain ecosystem, demonstrate a powerful synergy when combined. Chainlink’s ability to provide secure, reliable, and decentralized data complements Avalanche’s high-throughput, scalable blockchain platform, enabling developers to build more complex, useful, and transparent applications.

READ ALSO: "Chainlink vs Polkadot"

If you are interested in utilizing Chainlink or other blockchain-based solutions for your project, please reach out to contact@nextrope.com