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DARPA Report Finds Vulnerabilities in Blockchain Crypto Transactions

Distributed ledger technologies commonly known as the blockchain, refer to software that stores information on a secure, decentralized network where users need specific cryptographic keys to decrypt and access data. Cryptocurrencies, such as the popular Bitcoin, are networks built on the blockchain, a financial ledger formatted in a sequence of individual blocks, each containing transaction data. Blockchain is essentially a global public ledger capable of automatically recording and verifying a high volume of digital transactions, regardless of location. Essentially, it’s a shared database populated with entries that must be confirmed and encrypted.

In practical terms, this means that all nodes run on the same software, have a local copy of the whole database, and constantly talk to each other to propagate data and validate it. But what’s unique about this database is that every update is final, nobody can tamper with it.  These networks are decentralized, meaning there are no banks or organizations to manage funds and balances, so users join forces to store and verify the transactions. Since blockchain operates through a decentralized platform requiring no central supervision, thus preventing a single actor from tampering with information stored across its network and hence makes it resistant to fraud.

New research challenges the security of the ledger technology blockchain software runs on, raising concern about its uses, from cryptocurrency spending and trading to electronic voting. Commissioned by the Defense Advanced Research Projects Agency, researchers reviewed the features and vulnerabilities of distributed ledger technologies to gauge if the software is truly decentralized, or free from external control.

Distributed ledger technology (DLT)—specifically, blockchains—are used in various contexts, such as digital currency, decentralized finance, and even electronic voting.  While there are many different types of DLT, each built with fundamentally different design decisions, the overarching value proposition of DLT and blockchains is that they can operate securely without any centralized control.

The cryptographic primitives that enable blockchains are, by this point, quite robust, and it is often taken for granted that these primitives enable blockchains to be immutable (not susceptible to change). Authored by cybersecurity consulting firm Trail of Bits, the report found that some blockchain technologies can be mutable and susceptible to change, threatening the data stored within the proof-of-work blockchain.

This report gives examples of how that immutability can be broken not by exploiting cryptographic vulnerabilities but instead by subverting the properties of a blockchain’s implementations, networking, and consensus protocol.

Trail of Bits CEO Dan Guido says blockchain — the public ledgers that keep track of cryptocurrencies, which are replicated on computers around the world — isn’t the egalitarian tech its advocates claim. “It’s been taken for granted that the blockchain is immutable and decentralized, because the community says so,” says Guido.

But in practice, he says, these networks have evolved in ways that concentrate power in the hands of certain people or companies, including the large pools of “miners” whose computers earn virtual currency by maintaining the blockchains. Guido’s team calls these potential situations “unintended centralities” — situations in which someone gains leverage over the decentralized system, creating opportunities for tampering with the record of who owns what.

This report covers several ways in which control of a DLT can be centralized:
● Authoritative centrality: What is the minimum number of entities necessary to disrupt the system? This number is called the Nakamoto coefficient, and the closer this value is to one, the more centralized the system. This is also often referred to as “Governance Centrality”. Every widely used blockchain has a privileged set of entities that can modify the semantics of the blockchain to potentially change past transactions. The number of entities sufficient to disrupt a blockchain is relatively low: four for Bitcoin, two for Ethereum, and less than a dozen for most PoS networks.
● Consensus centrality: Similar to authoritative centrality, to what extent is the source of consensus (e.g., proof-of-work [PoW]) centralized? Does a single entity (like a mining pool) control an undue amount of the network’s hashing power? An increasing number of consensus protocol operations are being delegated to a small
number of entities that typically run their own centralized software and protocols with little-to-no on-chain governance.

While there is evidence that risk-sharing entities such as mining pools and staked validators decrease the economic centralization of a blockchain, it is well known that they exist as technological single points of failure and are therefore rich targets for denial-of-service attacks. The safety of a blockchain depends on the security of the software and protocols of its off-chain governance or consensus mechanisms.
● Motivational centrality: How are participants disincentivized from acting maliciously (e.g., posting malformed or incorrect data)? To what extent are these incentives centrally controlled? How, if at all, can the rights of a malicious participant be revoked?
● Topological centrality: How resistant is the consensus network to disruption? Is there a subset of nodes that form a vital bridge in the network, without which the network would become bifurcated?
● Network centrality: Are the nodes sufficiently geographically dispersed such that they are uniformly distributed across the internet? What would happen if a malicious internet service provider (ISP) or nation-state decided to block or filter all DLT traffic?

Another example in the report of this kind of concentration is the fact that 60% of Bitcoin traffic is handled by just three internet service providers. “Let’s say somebody with great top-down control of the internet in their country starts to interfere with that network,” Guido says. By slowing down or stopping legitimate blockchain traffic, an attacker could become the “majority” voice in the consensus of what’s written to a blockchain at that moment. “They can rewrite history. They can censor transactions. They can make it so that you can’t spend your Bitcoin,” says Guido. “It’s definitely something people would want to do if they want to ‘grief’ the network.”

● Software centrality: To what extent is the safety of the DLT dependent on the security of the software on which it runs? Any bug in the software (either inadvertent or intentional) could invalidate the invariants of the DLT, e.g., breaking immutability. If there is ambiguity in the DLT’s specification, two independently developed software clients might disagree, causing a fork in the blockchain. An upstream vulnerability in a dependency shared by the two clients can similarly affect their operation

“For example, the idea that 21 percent of Bitcoin nodes are running an old version of the Bitcoin core client that’s known to be vulnerable,” Baron says, referring to the basic software running that blockchain. That means all those computer are open to the same kind of hack — a big first step for an attacker trying to dominate a blockchain network, sometimes called a “51 percent attack.”

Several factors contribute to vulnerabilities within blockchain systems. One critical component of a secure and decentralized blockchain ledger is the system of nodes, or participating computers, included in the network. Should just one of these nodes not have the proper security protocols or simply be run by a dishonest actor, the data passing through the blockchain is susceptible to hacking or change. This finding erodes the longstanding notion of blockchain’s inherent security and threatens the information stored within various blocks.

The standard protocol for coordination within blockchain mining pools, Stratum, is unencrypted and, effectively, unauthenticated. The report also notes that all Bitcoin protocol traffic in particular is unencrypted, which does not initially pose a threat for data passing between nodes within a network. However, should a third party within the network route between nodes become corrupted, external actors can potentially disrupt transactions on the ledger.

“The report demonstrates the continued need for careful review when assessing new technologies, such as blockchains, as they proliferate in our society and economy” said Joshua Baron, the DARPA program manager overseeing the study. “We should not take any promise of security on face value and anyone using blockchains for matters of high importance must think through the associated vulnerabilities.”


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