Thursday, February 2, 2023
  • Transaction malleability is an attack that allows a crypto hacker to change the unique ID of Bitcoin or altcoin transaction
  • Transaction malleability has heavily affected Bitcoin’s network
  • Bitcoin debuted with Proof of Work as its consensus mechanism, and each transaction was uniquely identifiable. This allowed easy referencing within the blockchain network

Blockchain technology is renowned for its array of applications. From decentralized finance to the fintech industry, they branch off to hospital sectors and other applications. The possibilities that blockchain offers have opened the door to many innovators who seek to explore the unknown. At the moment, its most prominent application is cryptocurrency. Crypto has revolutionized the financial system on a global scale.

Bitcoin, crypto traders and miners are the terminologies that pioneered this significant venture. Alas, various individuals, commonly known as crypto hackers, have exploited the various loopholes found within blockchain security. This article will discuss a legacy but dangerous blockchain security threat; transaction malleability.

It is important to note that a crypto trader or anyone involved within Web3 has to be aware. This is a series aimed at educating crypto traders about the potential dangers that they may face. However, fortifying the weak link in blockchain security, human negligence, and error achieve the primary goal of safety.

Where did these  blockchain attacks all come from?

Blockchain is generally the backbone and mechanism of Web3. It is the primary mechanism that creates the decentralized nature of Web3. The central concept behind blockchain is to make the need for a centralized command obsolete. As a result, blockchain-primarily focuses on securing authentication and integrity. As a result, various cyber security is inapplicable to blockchain since they generally alter a transaction. This new form of technology made crypto traders feel safe and at ease, knowing that the set blockchain security was functional.

Unfortunately, what seemed like a solution to one end of the spectrum was taken as a challenge to the other. Blockchain security protects cryptocurrencies such as Bitcoin and all other altcoins from common cyber threats. However, cyber hackers have invested in new, more sophisticated ways to target blockchain security vulnerabilities.

Blockchain is still a working progress and needs to be more fortified than Web2; hence has various zero-day flaws that most developers need to catch up on. Cyber hackers identify these flaws and exploit them to gain access to a legitimate account to steal millions of crypto coins.

Also, Read NFT Security vulnerabilities plaguing the NFT Marketplace.

As a result, crypto traders have suffered immensely from these attacks. Most veteran crypto traders still have PTSD from losing their hard-earned money. Take the recent FTX crash. Many might suspect it had a foul play, which may be true. After Coinbase exposed their “so-called” foul play, millions of crypto traders began selling their coins or withdrawing all their savings stored within the network. Alas, FTX could not keep up with the transactions and failed to meet them at once.

A typical scenario of crypto traders fearing the impact crypto hackers have.\

What is Transaction Malleability

Malleability is simply the capability of being influenced or altered by external forces. This phrase pops up when discussing metal or metal works and how malleable it is. In layman’s, it’s simply how much force is needed to alter its shape.

transaction malleability

Crypto hackers invented transaction malleability to alter a crypto trader’s transaction, causing blockchain security to declare them invalid.[Photo/BitcoinBlog]

Transaction malleability is an attack that allows a crypto hacker to change the unique ID of a Bitcoin or altcoin transaction. It tricks legitimate users and the blockchain security mechanism into believing the transaction did not go through.

This attack is among the first interaction of blockchain attacks and caused havoc during its initial debut.

Understanding crypto transactions

Transaction malleability heavily affected Bitcoin’s network; hence many articles and experts merely associate it. However, cyber security assumptions are not a luxury we can afford. Therefore the possibility of it affecting other cryptocurrencies is still plausible.

To understand how malleability exploits transactions, it is essential to understand the transaction itself.

Bitcoin debuted with Proof of Work as its consensus mechanism, and each transaction was uniquely identifiable. This allowed easy referencing within the blockchain network. They were atomic operations that transfer value between users. According to the primary mechanism of blockchain technology, each transaction, once created and completed, is published in its network.

Bitcointransactions

Bitcoin’s transaction process.[Photo/Media]

At its core, each piece of information in the transaction passes through the hash function. Hashing involves taking all the information and compressing it into smaller packages, and its unpredictability allows now two hash functions to look the same. A key factor comes in when an individual alters a single piece of information; it may be as small as a single character and result in a completely different hash.

This mechanism gives blockchain technology its fundamental advantage of curbing fraud and duplication. Unfortunately, crypto hackers found a way to circumnavigate this feature.

How Transaction Malleability works

What transaction malleability does is; it changes the unique transaction ID before its confirmed or validated by the blockchain network. This is another essential factor to note. For cyber hackers to alter transactional information, they must first gain access to a blockchain network. Hence if a transaction is changed, it indicates that a crypto hacker infiltrated the network. This may mean additional vulnerabilities that the blockchain security mechanisms are yet to discover.

If a crypto hacker can alter the transaction information before generating a hash, blockchain security indicates it as invalid. Hence, a crypto hacker can effectively “ignore” any transactions a valid user previously made. This causes a ripple effect on the blockchain network. In some cases, the blockchain security may ignore the transaction, and the crypto wallet may still think it has not sent any bitcoin.

Also, Read Blockchain adoption in Africa is hampered by scepticism.

If the crypto hacker wishes to damage the blockchain network, the transaction may be in a perpetual state of limbo. If such transactions build up, it may clog the network, and its unregistered state will remain unrecognized by the blockchain network. In a way, the crypto trader and platforms will have a slow network but will need to find out where the issue is.

Why transaction malleability is cumbersome

Various experts state that transaction malleability paved the way to double spending and 51% attack. However, double spending took a different route. Instead, it spends coins once and then finds a way to create separate transactions with the same bitcoins or altcoins before the first transaction is confirmed.

Mt Gox is a prime example of transaction malleability and greatly suffered. Transaction malleability allows crypto hackers to steal and slow down the blockchain network. In some cases, they use it to block crypto traders from efficiently using an exchange’s resources.

Counter Measures

For many years crypto exchange platforms such as Bitcoin have explored various ways to curb this issue. The primary method of dealing with transaction malleability is to solidify zero-confirmation reliability. Despite its heavy tool on the network, transaction malleability is used mainly as a distraction or to prove a point. It slows down the network giving crypto hackers adequate time to perform other attacks.

A key aspect where a crypto trader will significantly lose their savings is confirming a transaction with an unconfirmed parent. 

It may not significantly affect a crypto trader but understanding that it would be a precursor to an additional attack.

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