Cybersecurity Risks of Cross-Chain Interoperability Explained

Security, decentralization and scalability remain significant issues with blockchain technology. The rise of different blockchains has brought to light the problem of interoperability. However, different cross-chain solutions are developed to solve this problem.

While cross-chain interoperability offers significant benefits, it introduces a few downsides, like cybersecurity risks, that must be addressed. 

What Is Cross-Chain Interoperability?

Cross-chain interoperability is a process that enables communication, data exchange and transfer of assets like cryptocurrencies between different blockchains. It presents significant benefits such as improved liquidity and enhanced scalability.

Cross-chain solutions vary in type, and they include the following:

• Bridges: These are protocols that connect two or more blockchains and allow transfer of assets or tokens from one blockchain or network to another.
• Sidechains: They are secondary or independent blockchains that run parallel to a main chain, enabling transactions without congesting the main network. Sidechains operate their own consensus mechanism and security protocols.
• Atomic swaps: These are smart contracts that allow users to exchange cryptocurrencies directly on different blockchains. Atomic swaps adopt a peer-to-peer (p2p) mechanism and eliminate the need for intermediaries.

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Cross-Chain Interoperability Cybersecurity Risks

Security has been a major challenge posed by various blockchains. Today, we have seen many exploits on blockchain networks. 

Bridge Vulnerabilities

A blockchain bridge connects two separate blockchains, enabling the transfer of tokens and data between them. Bridges address the problem of interoperability within blockchains.

In bridges, assets are locked on the main chain while equivalent tokens are minted on the destination chain. For example, transferring ETH tokens to Solana involves locking ETH on Ethereum and minting Solana-compatible ETH.

Bridges are susceptible to smart contract exploits. Smart contracts are programs that self-execute when the terms of a contract are met. Today, the complexity of smart contracts makes them vulnerable to various exploits that can negatively impact cross-chain systems. 

Vulnerabilities associated with smart contracts come in different forms. They could be logical and can allow attackers to manipulate the system's logic, leading to the creation of assets without a corresponding deposit on the source chain. 

An example of smart contract exploit is seen in the Qubit Finance a Binance Smart Chain project (BSC), where an attacker hacked $80 million worth of BNB tokens by manipulating contract functions.

Another form of smart contract exploit is access control. When access control mechanisms are inadequate, unauthorized users can execute functions within a smart contract, resulting in unauthorized withdrawals or manipulation of assets. 

A notable example is the PolyNetwork attack, where an access control vulnerability allowed attackers to bypass security checks.

Blockchains have different rules and standards for validating transactions. Therefore, they are posed to smart contract exploits. If a smart contract doesn't consider these differences, it might not execute correctly across chains, leading to asset loss or incorrect transaction processing.

There are also centralization risks. Many bridges rely on centralized entities to transfer tokens or data between blockchains. As a result, this does not conform to one of the core features of blockchain, decentralization. This creates single points of failure that attackers can exploit.

Multichain cross-chain bridge protocol suffered one of the biggest crypto hacks of more than $125 million in July 6th 2023, according to reports from Chain Analysis.

With speculation from analysts that the hack may be related to technical issues experienced after the CEO went missing over a month earlier, this underscores the potential security risk of a centralization of power in blockchain.

Consensus mechanism discrepancies also pose a significant security risk to cross-chain interoperability due to differences in how transactions are validated and finalized. Blockchains employ different approaches to finality, with some offering probabilistic finality, like Bitcoin’s Proof-of-Work (PoW), where transaction security increases over time, but irreversibility is never absolute. 

Others utilize mechanisms like Practical Byzantine Fault Tolerance (pBFT) to achieve immediate and irreversible, deterministic finality. Bridging chains with these contrasting finality characteristics risks assuming transaction completion on one chain before it is truly finalized on the other, which can lead to security vulnerabilities.

Transaction confirmation times also vary. Chains that use PoW require multiple block confirmations, which can take minutes or hours, while Proof-of-Stake (PoS) and other mechanisms may offer faster confirmations, sometimes within seconds. 

This variation in confirmation times introduces latency issues and inefficiencies in cross-chain operations. For instance, a cross-chain transfer might be delayed because one chain's slower confirmation time holds back the entire process.

Different consensus mechanisms increase susceptibility to attacks. For example, PoW chains are vulnerable to attacks where an entity controlling the majority of the mining power could reverse transactions. Some mechanisms are also more prone to chain splits or forks, leading to differences in the transaction history.

Another risk involves Oracle manipulation. Oracles act as bridges between the blockchain world and the real world, providing information like asset prices to smart contracts. This information is vital for the proper execution of cross-chain bridge operations, such as determining the correct amount of assets to lock or mint during transfers. 

Oracle manipulation occurs through data feed manipulation. In data feed manipulation, an attacker can gain control of a price oracle that a cross-chain bridge relies on. They manipulate the data feed to make it seem like a particular cryptocurrency is worth much more than its actual market value. This tricks the bridge’s smart contracts into releasing more assets than intended, allowing the attacker to profit while causing losses to users.

Attack Vectors

Wormhole is a blockchain bridge that facilitates asset transfers between Layer 1 blockchains like Ethereum and Solana. It relies on validators called guardians to verify transactions. 

A recent Wormhole hack exploited a vulnerability in its smart contract resulting in a $325 million theft. The attacker bypassed the signature verification process by exploiting a bug in the verify signatures function. 

Specifically, the function failed to validate the address of an input properly, allowing the attacker to use dummy data to mint Wormhole ETH tokens on Solana. These tokens were later transferred back to Ethereum to complete the theft. 

After the attack, JumpCrypto provided liquidity to cover the stolen funds, and Wormhole implemented a fix to secure the vulnerable function.

In replay attacks, hackers can mimic user credentials to relay data fraudulently, exploiting the split ledgers that arise during forks. Even though attackers can’t access data fully during transmissions, they can disrupt the blockchain significantly, causing denial-of-service issues.

Blockchains are most vulnerable to replay attacks immediately after a hard fork. Attackers can exploit user credentials to replicate fraudulent transactions and weaken the computing power of legacy chains. 

If a cross-chain bridge links a forked blockchain with another network, attackers might replay transactions from the forked chain on the original chain (or vice versa), leveraging the compatibility of the transaction signatures between the two.

Challenges in Securing Cross-Chain Systems

Securing cross-chain systems requires a lot of technical integration with diverse blockchains, thus poses significant challenges such as:

Security 

As more chains interconnect, maintaining security while scaling becomes difficult. Each chain introduces its own security risks, and interdependence among them further increases the risks. For example, the cycle expands when a blockchain is compromised, and others connected to it are also prone to danger.

Complexity of Integration

The underlying complexity in different blockchain protocols makes it difficult to create a unified security framework. As explained, various blockchains operate different consensus mechanisms, transaction finality, etc. These features make it complex to integrate with other blockchains causing a gap in security. This further exposes blockchains to hackers who can exploit the differences.

Key management 

Many cross-chain bridges have suffered attacks due to poor private key management practices, thereby creating the need for robust security measures. Managing private keys is crucial for securing cross-chain operations to avoid unauthorized access to funds in wallets.

Regulatory Compliance

The similar structure of centralized bridges and traditional financial institutions exposes them to potential regulatory concerns. Unlike decentralized bridges, these platforms face more intense regulatory laws due to their centralized model. 

These regulatory laws introduce additional layers of compliance requirements and legal constraints that might impact the bridge's functionality and user experience.

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Strategies for Mitigating Cybersecurity Risks in Cross-Chain

Irrespective of the security risks associated with cross-chain interoperability, several strategies can be implemented to mitigate these risks. They are listed below:

1. Multi-Signature Wallet 

This method enhances security by requiring multiple approvals for transactions. This adds an extra layer of security when carrying out transactions. Even if one key is compromised, the attacker can’t execute transactions without additional signatures from other key holders. 

2. Cryptography Techniques 

Advanced cryptographic techniques, such as zero knowledge proofs (ZKPs), and multi-party computation (MPC) should be implemented to enhance privacy and security in cross-chain transactions. These techniques allow for secure data transmission without exposing sensitive information. 

3. Standardized Interoperability Protocols 

Implementing standardized protocols, such as those used by Polkadot and Cosmos, ensures secure communication between different blockchain networks. This standardization helps prevent vulnerabilities that arise from inconsistent implementations across chains, facilitating safer asset transfers and data sharing.

4. Decentralized Oracle Networks (DONs) 

DONs aggregate data from different sources, thereby reducing the risk associated with relying on centralized ones. This decentralization enhances data integrity and minimizes the chances of manipulation, as it requires consensus among various nodes before any data is accepted. In addition, DONs employ robust validation mechanisms to verify accuracy and reliability of information they provide. This approach ensures security in smart contracts.

5. Monitoring and Alert Systems 

Implementing real-time monitoring systems in blockchain networks helps detect anomalies in operations, transactions and trigger alerts.

6. Regular Audits 

Continuous smart contract audits can help identify vulnerabilities in bridges and blockchains. This will help detect bugs, prevent hackers from exploiting contracts, and reduce financial loss. Platforms like Certik, Hashlock and ConsenSys diligence provide smart contract auditing services for blockchain protocols.

Addressing these problems through robust security measures is essential for ensuring the integrity of cross-chain transactions and enhancing a safer blockchain ecosystem.