Imagine waking up to find your business’s digital assets wiped out due to a single security flaw. No company, no individual wants to face this type of scenario, yet it’s a real threat in the Web3 landscape. While decentralisation offers unprecedented control and freedom, it opens doors to evolving cyberattacks and data breaches.

 

Securing your users’ assets isn’t just a good idea—it’s essential. Many in the blockchain space overlook this, thinking decentralisation offers enough protection. This false sense of security can lead to devastating consequences. 

 

The reality is that with proper cybersecurity measures, the data and assets of the business are protected. In this article, you will explore critical practices to strengthen your defences. From understanding the threats to implementing effective strategies, you’ll gain practical insights to safeguard your presence in the Web3 world.

What Is Cybersecurity?

Cybersecurity in Web3 is about protecting users’ digital assets and personal information in the decentralised world of blockchain. In simple words, it means keeping hackers and malicious actors away from accessing precious data and funds.

 

It operates on blockchain technology, which removes the need for a central authority. While this decentralisation gives greater control, it also introduces unique risks. Hackers can exploit vulnerabilities in smart contracts, wallets, and networks. That’s why cybersecurity is not just critical; it’s essential.

 

What Is Data Protection?

Data protection is a subset of cybersecurity. It ensures that any user’s personal information remains private and secure. Unlike traditional systems, where companies hold data, Web3 allows every customer to own and control it. However, with this control comes responsibility. 

 

In the online environment, you can’t rely on third parties to protect your assets. You are responsible for implementing strong security measures. This includes using secure wallets, updating your software, and staying informed about potential threats. 

Importance Of Data Protection In Web3 Space

In the Web3 landscape, your business data extends beyond personal information, encompassing your digital assets and identity. A breach in data protection can have severe consequences, not just financially but also in terms of customer trust. Hackers constantly look for vulnerabilities in blockchain-based businesses. Hence, a business becomes an easy target if it does not have robust protection.

 

Generally, enterprises must pay more attention to the risks associated with inadequate data protection. The common belief that the blockchain’s decentralised nature guarantees security is a risky misconception. Without implementing proper measures, your business data is almost always at risk. Hackers can exploit these gaps, leading to data theft, identity fraud, and significant financial losses.

 

It’s crucial to take a proactive approach to safeguarding your business data. The following section will outline the best practices for ensuring data protection in the Web3 environment.

Tips To Enhance Cybersecurity and Data Protection in Web3

As a Web3 business owner, you already know the importance of security. But it’s crucial to have a clear strategy when it comes to cybersecurity and data protection. Here’s a breakdown of key areas you need to focus on:

Data Analysis and Classification

Start by understanding what kind of data you’re dealing with. Not all data holds the same value or risk. Classify your data based on sensitivity. This helps you identify which information needs more robust protection. For instance, personal data from users will require a higher level of security than general business information. Knowing the data type lets you focus your efforts on what matters most.

Access Control to Sensitive Data

You can’t let everyone access everything—limit who can view or modify sensitive information. Set strict permissions and roles within your team. Only those who genuinely need access should have it. This reduces the chances of internal threats or accidental breaches. Regularly review these permissions to ensure they align with your current business needs.

Encryption

Encryption is non-negotiable in Web3. It turns your data into a code, making it unreadable without the correct decryption key. This way, even if a hacker manages to breach your system, they can’t use the data. Make sure you apply encryption to data at rest (stored data) and in transit (data being sent or received). This extra layer of security keeps your sensitive information safe from prying eyes.

Multi-factor Authentication (MFA)

Passwords alone aren’t enough. You must implement multi-factor authentication (MFA) to add another layer of security. MFA requires users to provide two or more verification factors before gaining access. For instance, after entering a password, the user might need to enter a code sent to their mobile device. This approach makes it much harder for attackers to gain access, even if they have a password.

Create a Data Usage Policy

A clear data usage policy is important to save you from data breach. Outline how your organisation should handle, store, and share data. This ensures everyone knows the rules and follows them. Your policy should cover everything from acceptable use policies (AUPs) to data retention. By having these guidelines, you reduce the chances of your data being mishandled or exposed.

Physical Controls

You must ensure that servers, workstations, and other critical hardware are secure. Limit access to these areas to authorised personnel only. Use security measures like locks, surveillance cameras, and even biometric scanners wherever necessary. Physical security might seem basic, but it’s essential to your cybersecurity strategy.

 

Focusing on these areas can significantly enhance your cybersecurity and data protection efforts. It’s about being proactive and putting strong measures in place to safeguard your Web3 business.

Recent Frauds In Web3 Spaces Due To Lack Of Data Protection

 

 $210k Exploit Hits Convergence_fi

On August 1, the DeFi protocol @Convergence_fi lost around $210,000 when a hacker exploited a flaw in the CvxRewardDistributor contract.

 

In a recent update on their ‘X’ account, @Convergence_fi warned users to stop using the protocol and to withdraw any assets they have staked on the platform.

 

The hacker stole 58 million CVG tokens for staking rewards and took $2,000 worth of unclaimed rewards from Convex.

 

The attacker used Tornado Cash to fund their activities, traced to this address: Tornado Cash Address.

 

Since the exploit, the price of CVG tokens has dropped significantly and hasn’t bounced back.

The Vulnerability

The CvxRewardDistributor contract mints CVG rewards for stakeholders and holds rewards claimed from Convex.

 

A function claimMultipleStaking() bug prevented user inputs from being correctly checked. The hacker used this flaw to create a malicious contract that minted all 58 million CVG tokens intended for staking rewards and then dumped them into liquidity pools.

Why Wasn’t the Bug Fixed in the Audit?

To save on gas costs, developers changed the contract after the audit, including removing the line that validated user inputs for claimMultipleStaking(). Since these changes were made after the audit, the auditors could not have identified or prevented the exploit.

MonoSwap Hack: $1.3M Lost in Exploit

On July 24, 2024, MonoSwap (@monoswapio) on the Blast chain suffered a significant hack, resulting in a loss of about $1.3 million.

What Happened?

According to a post by @monoswapio, hackers exploited the platform using a botnet. They tricked one of MonoSwap’s developers by pretending to be venture capitalists interested in investing in MonoSwap. 

 

During a call, they installed malware on the developer’s office PC.

The malware, disguised as a mobile app similar to KakaoTalk, gave hackers access to all MonoSwap-related wallets and contracts. Once they had access, they drained the staked liquidity positions.

The Aftermath

MonoSwap quickly warned users to stop adding liquidity or stakes to their farming pools until the issue was resolved. They also advised users to withdraw their staked positions to prevent further losses.

 

The platform is investigating the incident and will soon provide updates on recovery efforts. Due to the hack, MonoSwap’s Total Value Locked (TLV) dropped from around $1.5 million to $200,000.

 

The stolen funds were initially sent to the address 0x895a80371fc0e6987e27ddc7aa0e851bc3538ea8 and then bridged to the Ethereum address 0xd30eBC0a9AcdA91d383675EAAB3ff24f06d07eCE. Later, the 371 ETH was moved to Tornado Cash.

WazirX India Loses $234M

On July 18, 2024, WazirX India, one of the biggest crypto exchanges in India, experienced a massive security breach. Hackers stole around $234 million from the platform.

What Happened?

According to WazirX India, the hackers targeted one of their multi-sig wallets. The company is now on date investigating the situation and has paused all INR and crypto withdrawals to prevent further damage.

In the breach, the hacker’s address received funds from Tornado Cash, a service often used to hide transaction trails. The hacker then moved the stolen assets to several addresses before converting them into Ethereum (ETH) through Uniswap. The assets swapped included $PEPE, $GALA, and $USDT.

The Aftermath

WazirX shared a report explaining that the data displayed on Liminal’s interface didn’t match the signed information during the attack. They suspect the hacker altered the payload to gain control of the wallet.

 

Here’s what WazirX did to recover the lost funds:

• They filed a physical complaint and reported the incident online through the National Cyber Crime Reporting Portal. They also informed CERT-In and the Financial Intelligence Unit (FIU) India.
• WazirX started working with over 500 exchanges to blacklist the hacker’s addresses and support the recovery efforts.
• They hired cybersecurity experts to help with the investigation and recovery.
• WazirX launched a bounty program, offering up to $10,000 USDT for any leads that help recover the stolen funds. They also offer up to $23 million as a White Hat Bounty.

 

WazirX has temporarily (as of date) stopped all INR and cryptocurrency deposits and withdrawals to protect users’ funds. They’ve also decided to halt trading until they complete a thorough security check and review the affected systems.

Conclusion

Enhancing cybersecurity and data protection in Web3 isn’t just a task—it’s a necessity. You can protect your business from potential threats by following best practices like data classification, access control, encryption, and multi-factor authentication.