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Web3 emerged as a blockchain-powered disruption to the current state of the Internet. But still a nascent technology, his discussion of Web3’s true function and his role of Web3 in everyday life is plagued with vague assumptions.
Given the potential of a decentralized internet using public blockchains, a full transition to Web3 requires scrutiny of several factors. Security is often one of the most important features. In a Web3-powered world, tools and applications hosted via blockchain will become mainstream.
The blockchain that hosts the Web3 application remains impenetrable from holding attackers hostage, but hackers are targeting vulnerabilities within the project’s smart contracts. Smart contract attacks against decentralized finance (DeFi) platforms are on the rise, with recent research revealing nearly $1.6 billion in cryptocurrency stolen in the first quarter of 2022 alone.
DeFi is a subset of the Web3 spectrum, but reflects the greatest vulnerabilities within the ecosystem. As a result, Web3 entrepreneurs will have to redirect their marketing budgets to develop core systems.
As seen throughout the year, vulnerabilities that allow hackers to exfiltrate vast amounts of assets can result in permanent losses for investors and the indirect collapse of the ecosystem involved.
In addition to external hacks, malicious individuals within the system can defraud the project and its investors. Avoiding internal attacks requires a fail-safe her mechanism with restricted access to employees.
On August 14, automated trading and liquidity market maker (AMM) Velodrome Finance recovered $350,000 from one of its team members, Gabagool. He had $350,000 drained from one of his high-value wallets in the Velodrome. A subsequent internal investigation revealed the identity of the attacker and allowed the company to recover the entire loot.
A bear market of over six months, coupled with countless hacks, has forced crypto investors to recalibrate their investments into an ecosystem that reflects their safety. It is expected that measures will be taken to ensure long-term success.
One way to minimize the risk of attacks is to implement a bug bounty initiative. Bug bounties attract white hat hackers looking to identify vulnerabilities from a hacker’s perspective. Developers are financially rewarded for finding and fixing valid bugs in the system.
Additionally, entrepreneurs should set up multisig wallets to store their funds and avoid centralized wallet management. Such measures, when implemented system-wide, reflect greater decentralization and isolation from orchestrated attacks.
