Security in Web3: What’s Next?
Web2 vs. Web3
Blockchain is a distributed ledger. It is fully transparent and permissionless. Anyone can join from all over the world. All code is open-source and can be reviewed by anyone.
At first, that can sound dangerous from a security perspective. Everything wide in the open? And it does pose a danger — there have been an enormous amount of hacks and exploits in the crypto industry. More than 60+ in the first quarter of 2022 alone. Hackers just review the code, find vulnerabilities, and attack.
However, over time it forces everyone to pay very close attention to protective measures and do a good job. Auditing firms have sprung up, and bug bounty programs are a staple for most protocols today. A fully transparent system raises the bar for quality and keeps everyone accountable. It is a challenge but, at the same time — the main advantage of Web3. Right now, we are in the exploration phase. Lots of new projects are launched: quite some fail, and an amount succeeds. It is a time of opportunity, especially in the field of security. So what’s next?
Web3 Security Trends
Before we dive deep into some of the interesting new security technologies, it is essential to shine a light on significant trends driving the security space.
Every day thousands of people are moving to Web3. This is no different for security experts. In Web2 such experts have typically been working for large enterprises for a base salary. In Web3 they can browse Immunefi, join a bug bounty program and make much more than in Web2. The blockchain industry is sucking up all the talent.
There is a lot of capital being invested in the security space. Venture funds like a16z and 3AC are investing billions of dollars into crypto and part of that is flowing into the security field. Some projects are raising millions with just a whitepaper.
The timing is finally right. Web3 is reaching a more mature state, and lots of business leaders, governments, and large corporations are paying attention as well as getting involved. Security, however, is one of the main hurdles blocking people right now — adoption rates could be much higher. Therefore Web3 security is the next significant upcoming sector. We started with DeFi, went to Layer 1’s, the Metaverse, NFTs, and next is security.
Upcoming Security Technologies
A new industry is being formed within the crypto industry: blockchain forensics. Companies like Chainanalysis and CipherTrace use algorithms and human analysts to find security threats and vulnerabilities throughout the industry. They provide software solutions to Web3 protocols to amp up their security.
Another driving force is standardization. The industry is adopting new security standards and practices that are widely followed and implemented. These are then in turn reviewed by projects like DefiSafety, members of our Security Committee, which is a community-led review of code and documentation. This peer pressure results in quality being amplified, and ultimately better code is produced.
Although all smart contracts are on-chain, front-end interfaces are not. Over time when more of that code also becomes open-source, security could improve even more. Transparency leads to a complex challenge in the short-term but significant potential for secure systems in the long-term. Lossless makes use of that transparency by white-hats, security experts, crypto developers, and their bots reading the data in real time and having the ability to jump in and freeze transactions when suspected to be malicious.
Regulation is coming. This phrase has been widely used since 2017, and every time it’s used, it has been too early. A big driver for regulation could be security. Regulators are mainly worried about protecting investors, and exploits are a thorn in their side. A push for security regulation is expected to happen, resulting in protocols being required to comply with specific practices. And it might cover not only prevention but also detection and intervention.
There will always remain a small risk of a vulnerability. Be it a human or code. Insurance is one of the ways to get protected. Whether the other measures are in place when locking up significant amounts of capital, it is probably a good idea to get insurance. Good insurance providers are our partners Uno Re and Security Committee members Insurace. Implementing Lossless as a prevention tool should lead to lower insurance premiums. This provides another incentive for protocols to implement the Core Protocol.
Blockchain technology can also be used to make the Web2 world safer. Hackers now use many IoT devices — for instance, to get access to WiFi networks and, ultimately, passwords and bank account details. By decentralizing the control of such devices, hackers have less of a chance to get in. Other use cases of the internet could also move on-chain. An example is messaging: if we message over blockchain, it is even better protected than end-to-end encryption.
A vulnerability will still remain on the human side of things. Clicking phishing links or interacting with the wrong web addresses is, unfortunately, a massive reason for loss of capital. Technologies that could drive more security here are digital NFT passes. For example, to access websites or online products and services. Those can authenticate the website one interacts with to assure authenticity.
There are lots of tailwinds right now in Web3 security. It is an exciting field with lots of opportunities. It’s critical to get it right. Lossless has a vital position in the industry by providing tools to stop hackers in their tracks. Visit our social media or website to learn more and get engaged.
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from Lossless’ known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Lossless protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Its solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.