5 Steps to Ensure Best Practice in Initial Coin Offering Security
The use of blockchain technology and cryptocurrencies has changed the way businesses raise funds. Rather of pitching venture capital companies and giving up stock, authority, and autonomy during the fundraising process, entrepreneurs can now get the funding they need to grow and flourish without losing much more than financial incentives. ICO Security isn’t always assured, though.
Despite the widely stated security benefits of cryptocurrencies and the blockchain’s own protections, several high-profile examples illustrate that even the most impregnable barriers may be breached. This depicts a challenging and even alarming scenario for ICO launches.
Because funds raised through initial coin offerings (ICOs) might be stolen or lost as a result of hacks, blockchain-based firms face an uphill battle for success. The dangers, however, should not discourage a company from obtaining the cash it requires to grow. Several measures, on the other hand, can dramatically improve an ICO’s security and ensure that your round of crowdfunding is not only safe but also successful.
- Initial coin offers (ICOs) have changed the way firms acquire finance thanks to blockchain technology and cryptocurrencies (ICOs).
- However, improving the security of an ICO is crucial because initial coin offerings are not infallible, and funds can be stolen or lost as a result of hacks.
- Auditing smart contracts is one way to improve security because they are vulnerable to hacking due to poor design and programming flaws.
- Listen to and address community concerns, and put in place strong anti-phishing rules.
- Protect users and their tokens, which includes putting up firewalls to keep hackers out of website backdoors.
1. Examine the Smart Contracts That Underpin Them
Because the rules for executing agreements are totally automated and hard-coded into algorithms, smart contracts provide an innovative approach for facilitating trustless trades. Smart contracts are self-executing digital apps that may function on their own according to a set of instructions.
Smart contracts, on the other hand, have been hacked as a result of bad design or programming flaws. The distributed autonomous organization (DAO) was a collection of Ethereum blockchain smart contracts. The Decentralized Autonomous Organization (DAO) was a decentralized and automated venture capital fund. The Ethereum blockchain was hacked in June 2016, with about $50 million in money taken. The hackers had taken advantage of flaws in the contracts’ code.
Frank Bonnet, a blockchain and smart contract expert, underlines the significance of a professional audit for Smart Contracts.
“It’s nearly impossible to code a smart contract that is completely impermeable,” Bonnet remarked. “Even the finest programmers make mistakes, so having a third-party review and audit your contract is a necessary, even if it’s just for the sake of your investors’ peace of mind.”
Hackers that take advantage of flaws in smart contract code might cause serious problems for a network. Other issues that might arise from a poorly constructed smart contract include monies missing, duplicate tokens, and even programs designed to control the token minting process.
Pre-ICO smart contract audits, concentrating on security and penetration testing for blockchain apps and smart contracts, enabling projects to identify issues before they become disasters.
2. Pay Attention to Community Concerns and Work to Address Them
The degree of transparency offered by public blockchains and associated cryptocurrencies is one of their most distinguishing features. Most companies make all or part of their code, and in some circumstances, even the smart contracts for the ICO, available to the public. Despite their growing appeal among mainstream retail investors, a sizable section of the blockchain community is familiar with coding and will spend time looking into these important features. For some organizations, this is more of a formality than a step, however, this may be an inaccurate perspective.
The DAO is an excellent example of why businesses should pay attention to their communities. The company’s open-source code was on major repositories for review, and several developers warned that the files contained a major security flaw. Instead of updating the code, the DAO ignored the warnings, resulting in the loss of millions of dollars.
Members of the community have a strong interest in a successful ICO since it implies they will be able to benefit from the platform or service’s functionality. As a result, providing customers with a clear conduit to express their concerns and reveal faults is critical to the success of an ICO.
3. Create robust policies for detecting phishers.
It’s critical to be on the lookout for any signals of potential scams on the non-programming side of an ICO. While programmers and other tech-side staff may be aware of cybersecurity trends and best practices, not everyone on the team is aware of, or cares about, online safety. In this scenario, the first step is education. Members of the business development and sales teams do not need to know how to code, but they must be aware of potential exploits and indicators of a hack or scam.
In order to avoid fraud, businesses should always be as cautious and vigilant as possible. Scanning web platforms like Facebook, Telegram, and other hubs on a regular basis will help you spot unusual behavior and be ready for anything. This also allows your team to reliably communicate important information, display the proper ICO website, and educate community members about potential hazards.
Hackers get access to DNS records and build false replicas of the site, substituting the company’s domains with fake domains, in the instance of a Domain Name Server (DNS) assault. Fraudsters create bogus websites that look identical to the real thing. Hackers hijack traffic in order to steal personal information or a user’s credentials. Companies must be on the lookout for such frauds and report them.
4. Ensure that your ICO Gateway is secure.
CoinDash, a much-hyped ICO, was hacked in 2017, resulting in the loss of 43,000 ETH and serving as a cautionary tale for newcomers. The company’s smart contracts were protected, but not its website. As a result, hackers modified the wallet address on the ICO gateway, and once it was made public, hackers stole nearly $7 million in less than seven minutes.
Hackers were able to get access to the company’s website by exploiting a flaw that allowed them to change a source file, giving them complete remote control. Despite the repatriation of some funds, they were able to get away with a big robbery by simply altering the wallet address.
The moral of CoinDash’s story is that it is becoming increasingly popular to attack not just the infrastructure of most ICOs, which has been improving its security, but also an easily neglected target like a website. There is no need for a comprehensive security assessment in this situation, but it is critical to deploy the appropriate technologies to safeguard gateways.
Implementing a robust web application firewall (WAF), such as Incapsula’s, is one of the easiest and most effective ways to accomplish this. WAFs manage inbound and outbound traffic, allowing businesses to better control and monitor who has access to their files and websites. Backdoors to website shells are protected by firewalls, which also provide protection against typical script injection and exploit techniques.
5. Keep Your Users Safe
The crowdfunding process does not necessarily conclude with a successful ICO. Users must have access to the services they helped fund once they have received their tokens. A distributed denial of service (DDoS) assault is another sort of attack that can affect ICOs, cryptocurrency platforms, and exchanges.
DDoS assaults are used by fraudsters to distract people by overloading a system with many devices. Overcrowding the system hinders legitimate users from gaining access to it, disrupting the service or rendering it unavailable. The fraudsters then attempt to gain access to data centers or sensitive information, allowing them to launch further assaults. 3
Bitfinex, for example, was hit by a DDoS attempt in early 2020, in which the attacker “tried to exploit simultaneously multiple platforms features to raise the demand in the infrastructure.” The attacker attempted to overwhelm the system by exploiting an internal inefficiency by employing a large number of IP addresses, however, the problem was fixed and service was restored.
Protecting a website against hacks like DDoS attacks necessitates the use of the appropriate technologies, which WAFs may provide. Furthermore, businesses should constantly fight for the most strict security measures for users, such as two-factor authentication, regular notifications for any changes, and even keeping activity logs for security reasons. Users must be protected, and ensuring that they have access to services that they paid for is a must to prevent legal ramifications.
The Bottom Line
Initial coin offerings (ICOs) are a powerful tool for startups looking to keep control of their businesses, but they are not risk-free or omnipotent. To ensure success, you should constantly follow best security practices, putting forth the effort to ensure that you and your users are as safe as possible.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is extremely dangerous and speculative, and this article does not constitute an endorsement of cryptocurrencies or other ICOs by Investopedia or the author. Because each person’s circumstance is different, you should always get advice from a knowledgeable specialist before making any financial decisions. Investopedia makes no guarantees or representations about the accuracy or timeliness of the information provided.
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