Cryptocurrency bridges have emerged as critical instruments that facilitate the transfer of tokens between disparate blockchains. By permitting the seamless interplay of digital assets across different ecosystems, they stimulate an unprecedented level of interoperability in the cryptocurrency space. The fact that crypto bridges prone to hacks are solvable makes this matter crucial.
However, this powerful functionality is not devoid of significant security vulnerabilities. This article delves into the susceptibility of these cryptocurrency bridges to potential hacking threats, illustrating the necessity of continual vigilance and robust security measures to mitigate these risks.
What are cryptocurrency/blockchain bridges?
The digital world of cryptocurrency and blockchain often feels akin to a vast cosmos filled with individual, yet separate celestial bodies. Each of these bodies — different blockchains — is endowed with unique properties and characteristics. Think of a blockchain bridge or a cross-chain bridge as a celestial highway that weaves these disparate digital worlds together.
In simpler terms, it links two distinct blockchains, granting users the ability to send their cryptocurrency from one blockchain to another. Imagine owning Bitcoin, but wishing to use it as though it were Ethereum. This becomes possible via the bridge.
Historically, one of the most significant hindrances of blockchain was its isolationist nature. Imagine each blockchain as a self-sufficient island nation, effective and operative within its borders, but surrounded by impassable waters. This insular existence often results in exorbitant transaction costs and traffic congestion.
Here is where blockchain bridges come in to fill the gaps, quite literally. They provide a functional solution to this isolation, allowing the seamless transfer of tokens, the execution of smart contracts, the interchange of data, and more between two distinct platforms. It’s a transformative innovation that surmounts the digital walls that have long impeded true blockchain interoperability.
Each blockchain system produces different types of coins and operates on a unique rule set. The bridge functions as a diplomatic zone, facilitating the smooth transition between these disparate worlds. The ability to traverse multiple blockchains within the same network greatly enriches the user experience for crypto enthusiasts and newcomers alike.
At a glance, one might find similarities between blockchain bridges and layer-2 solutions. However, the underlying purposes of the two systems diverge significantly. Layer-2 systems are built atop an existing blockchain, enhancing its speed but not addressing the interoperability issue. On the other hand, cross-chain bridges act as independent intermediaries, not tied to any specific blockchain, promoting a level of seamless interaction that brings us closer to a truly interconnected crypto universe.
How Do Blockchain Bridges Work?
Cryptocurrency bridges perform a multitude of impressive tasks. They translate smart contracts, dispatch data, and their most notable role, facilitate the transfer of tokens. To illustrate, let’s consider the two titans of the cryptocurrency world: Bitcoin and Ethereum, each with its unique set of rules and protocols.
A blockchain bridge empowers Bitcoin users to ferry their coins across the digital divide into Ethereum territory, enabling transactions that would be impossible within Bitcoin’s native environment. This could range from acquiring various Ethereum tokens to making cost-efficient payments.
Imagine you’re a Bitcoin holder, intending to migrate some of your digital wealth to Ethereum. The blockchain bridge acts as a secure holding area for your Bitcoin, spawning an equivalent sum in Ether (ETH) for your use. It’s crucial to understand that no actual crypto makes a physical move. The designated amount of Bitcoin is effectively frozen or ‘locked’ in a smart contract, and in its stead, you gain access to an equal value of Ether.
When you decide to retrace your steps and return to the Bitcoin blockchain, the remaining Ether (depending on your transactions) is annihilated or ‘burned,’ and a corresponding number of Bitcoin reappears in your wallet.
In comparison to traditional methods, where you would typically convert BTC to ETH via a trading platform, withdraw it to a wallet, then deposit again to another exchange, the blockchain bridge bypasses these stages and the associated fees. Essentially, you’d likely have saved more than you planned to transact in the first place.
Common security vulnerabilities in cryptocurrency bridges
Crypto bridges facilitate cross-chain interoperability, essentially allowing different cryptocurrencies to interact and be transferred between multiple blockchain platforms. However, their increasingly pivotal role has made them attractive targets for malicious hackers.
Let’s look at a number of common security vulnerabilities inherent in these bridges, which can make them prone to hacks.
Weak On-Chain Validation
The first critical vulnerability often arises from weak on-chain validation. On-chain validation refers to the process of verifying transactions on the blockchain itself. In the case of a cryptocurrency bridge, this validation involves verifying that the incoming transaction from a source blockchain is valid and doesn’t involve any malicious intent.
Weak on-chain validation could mean the bridge fails to fully authenticate and verify these transactions, leaving the door wide open for fraudulent transactions. Hackers could exploit this loophole to replicate transactions, effectively double-spending the same cryptocurrency, a scenario that could prove disastrous for the bridge’s integrity and its users.
Weak Off-Chain Validation
Equally as critical is the off-chain validation. This process refers to the validation that takes place outside the blockchain, usually by the operators of the cryptocurrency bridge. These operators validate the transaction before it is confirmed on the destination blockchain.
Weak off-chain validation procedures are tantamount to leaving the digital vault’s back door open. It’s like letting transactions through without a thorough identity check, exposing the bridge to fake transactions and even manipulation of the value of transactions. This vulnerability makes it a prime target for hackers seeking to exploit this laxity.
Improper Handling of Native Tokens
Next in line of vulnerabilities is the improper handling of native tokens. Each blockchain platform has its native token – for Ethereum, it’s Ether, for Binance Smart Chain, it’s BNB, and so on. A cryptocurrency bridge must handle these tokens with extreme care, keeping accurate track of the amount and identity of tokens being moved across chains.
When native tokens are handled improperly, such as not correctly registering their movement or not adequately securing them during transit, it creates an opportunity for malicious parties to manipulate or steal these tokens. This could result in significant financial loss for users and undermine the entire function of the cryptocurrency bridge.
Last, but by no means least, is misconfiguration. Cryptocurrency bridges are complex technological architectures that require correct configuration to ensure security. This involves setting up security protocols, firewalls, permissions, and various other technical details.
Misconfigurations, like leaving a system’s default settings unchanged, not regularly updating or patching systems, or mishandling user permissions, can make a bridge a soft target for cybercriminals. In essence, it’s like leaving the blueprint of your security system in the hands of thieves. With such an advantage, hackers can easily plan and execute their attacks, leading to catastrophic losses and damages.
Which cryptocurrency bridges can get hacked?
The Ronin Bridge Breach
Starting with the Ronin Bridge, a significant breach was observed, attributed to sophisticated social engineering techniques. This bridge, developed by Sky Mavis for Axie Infinity, enables interaction between the Ronin Network—an Ethereum Virtual Machine-based sidechain—and Ethereum itself.
In an incident dated 23rd March 2022, malevolent actors successfully employed social engineering to compromise the validators’ private keys. This breach led to the unlawful removal of 173.6K ETH and 25.5M USDC tokens—amounting to over $600 million at the time—from the Ronin Bridge. The attackers approached Axie Infinity engineers via LinkedIn with a fraudulent job opportunity. Regrettably, one senior engineer fell prey to the deceit, culminating in the download of a malicious PDF file masked as a compensation package. This tactic allowed the attacker access to four of the nine validators.
The North Korean hacking group “Lazarus” is suspected of orchestrating this exploitation. Following the attack, the malefactors attempted to leverage the incident by short-selling Axie Infinity (AXS) and Ronin (RON) tokens, in anticipation of a price drop due to the news. However, this attempt was foiled as their positions were liquidated before the news broke. Post-incident, the bridge recommenced operations, enhancing its decentralization by increasing the number of validators and necessitating software updates.
The Binance Bridge Incident
The Binance Bridge, offering inter-blockchain liquidity for BNB Chain, BNB Smart Chain, and Ethereum, also fell prey to a hacking exploit.
On 6th October 2022, attackers exploited a proof verifier bug, draining $570M worth of BNB tokens. The preliminary step for the malefactors was registering as a relayer for the BSC Token Hub, exploiting a bug in the proof verification method used by the BSC Token Hub. Post-incident, urgent countermeasures were undertaken, including the suspension of all 44 validators and the application of a patch to rectify the issue.
The Wormhole Bridge Exploit
Wormhole, a bridge offering Ethereum and Solana connectivity, was exploited on 2nd February 2022, leading to a loss of $236M worth of tokens. An attacker successfully exploited a deprecated and insecure function, bypassing signature verification. The vulnerability was quickly patched, and operations resumed the following day.
The Nomad Bridge Attack
On 2nd August 2022, Nomad Bridge—an optimistic interoperability protocol for secure cross-chain communication—was exploited, leading to the loss of over $190 million in WETH and USDC. A trusted root exploit facilitated the attack. The Nomad team swiftly urged users who had acquired funds illicitly to return them, offering a 10% retention on the returned amount.
The Harmony Horizon Bridge Breach
Harmony’s Horizon Bridge, which offers users a trustless method of transferring crypto assets among the Harmony, BNB Smart Chain, and Ethereum blockchains, suffered an exploit on 23rd June 2022. This resulted in the loss of $100M after the private keys were compromised. Following the attack, the bridge’s multi-signature scheme was updated to necessitate approval by 4 of the 5 validators. Furthermore, the Harmony Protocol offered a $1M bounty for the return of the bridge funds.
Cryptocurrency bridges have undoubtedly ushered in a new era of blockchain interoperability, fostering seamless interactions among disparate ecosystems. However, their potential to transform the digital asset landscape comes with a significant caveat—security vulnerabilities. As our exploration of various cryptocurrency bridge hacks reveals, these structures can be prime targets for malicious exploits. Thus, it is incumbent upon developers and users alike to prioritize robust security protocols and to remain vigilant of potential threats. By doing so, we can ensure the continued growth and resilience of our interconnected blockchain world.