Block Chain Analysis Assignment 2022

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BLOCKCHAIN SECURITY ANALYSIS
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Abstract
The blockchain alongside its own features has in the recent past received significant attention
and has been used in numerous fields since its inception in 2008. Nevertheless, the security
issues surrounding blockchain technology have been exposed more often than not and cyber-
attacks have resulted in relatively large losses. The paper provides a discussion on the blockchain
technology, offering a systematic analysis of the security of every layer of the blockchain. It also
discusses the challenges that have been brought as a result of network supervisions of the
blockchain and concludes with a summary of the progress in research in protecting the
technology.
1. Introduction
Blockchain technology has a huge potential with various applications as well as provides
numerous opportunities for different infrastructure. The technology promotes management of
resources besides making communication secure as well as efficient. Trust, reliance and privacy
are enhanced when carrying out financial transactions among different parties with the use of
blockchain. This is because the technology lowers the likelihood of fraud and automatically
generates a record of activities, including creating an automated background check of a member
using the system (Aitzhan & Svetinovic 2016). As a result of the decentralized features,
blockchain results in increased reliability besides lowering the risks that are experienced when
looking to enter into a business agreement with an unfamiliar person or party.
At the moment, almost everyone is using advanced technology for the purposes of
communication via the internet. Voice calls, messages, video calls, pictures are currently able to
directly travel from the sender to the receiver over the internet regardless of their geographical
location. For the case of such a transaction, a trusted third party must be maintained between the
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receiver and the sender (Bach, Mihaljevic & Zagar 2018). When it comes to the case of transfer
of money, a third party has to be trusted to allow completion of the transaction. But with the use
of blockchain, a perfect security would be availed for the transaction.
2. Literature Review
2.1. Analysis of Blockchain Security
With the advent of blockchain technology being widely adopted, numerous and different kinds of
attacks have been established. Such cases include theft or loss of billions of digital currencies
and attack of various exchanges, among other events. Based on the data released by BCSEC (a
blockchain security company based in China), 2018 recorded an increased number of blockchain
security incidents that resulted to economic losses of approximately 2.1 billion dollars. The
number of blockchain security events increased from 15 in 2017 to 138 in 2018. These are just
part of the exposed incidents as the number of attacks are projected to be on the increase with the
increasing worth and application of blockchain (Banerjee, Lee & Choo 2018).
Figure 1: Economic losses as a result of blockchain security issues (’10,000) (Wang et al. 2019)
Notwithstanding the fact that blockchain technology remains in the early stages of rapid
expansion and the various security accidents experienced so far have made security features to be
very essential requirements in the development of blockchain systems. The security risk could be
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from external attackers or even internal parties. The acceptance, popularity and potential of
blockchain renders fresh demands on the security as well as protection of privacy on the storage,
application as well as transmission of data alongside putting forth new challenges to the
prevailing solutions of security, mechanisms of authentication, protection of privacy, and
protection of data alongside information regulation (Dorri et al. 2017).
2.2. Security Analysis of Individual Blockchain Layers
The present structure of blockchain may be separated into the following layers: application,
incentive, smart contract, network, consensus, as well as data layers (not in their systematic
order). The analysis of security aspect of each of the aforementioned layers is done
2.2.1. Application layer
The main function of this layer is to cover matters of security of centralized nodes, which
includes exchanges involving transactions of digital currencies as well as management of huge
volumes of funds. Such nodes are present at most of the failure points of the full blockchain
system and the vulnerability of attacks is often high whereas the cost is relatively low. A
combination of these characteristics usually make the layer a preferred target of many attackers.
Exchange DDoS: as a result of the network bandwidth demand being high especially in the
trading arena, occurrence of a DDoS attack makes it a very serious issue not only for the arena
but also for the whole industry. Should the trading arena attack be by DDoS, the arena will not
only incur losses but also a great reduction in the volume of the transactions involving
blockchain currency which would in turn have an indirect impact on the increase and decrease of
the value of blockchain currency (Eyal et al. 2016).
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