Blockchain

Every year, blockchain technology unveils new possibilities in the realm of digital transactions and decentralized applications. One of the latest additions to this ecosystem is the smart account—advanced accounts capable of automatically performing predefined functions and operations.

Imagine a digital wallet that automatically allocates funds among various investment portfolios based on predetermined rules or market conditions. Or consider a smart contract managing the supply of goods in real-time, based on demand and supply.

While smart accounts offer unprecedented flexibility and automation in managing cryptocurrencies, they also introduce unique security challenges that must be addressed to protect valuable digital assets and ensure the stability of decentralized systems.

What is a smart account?

Before delving into security issues, let’s clarify what smart accounts are and their role in the blockchain ecosystem. In traditional blockchains like Bitcoin, accounts are addresses linked to specific balances and transactions. However, smart accounts, as seen on platforms like Ethereum, have far broader functionality.

Smart accounts are unique accounts tied to executable code known as smart contracts. These contracts define the conditions under which the smart account can perform certain actions, such as transferring funds, performing computations, or interacting with other contracts. For instance, a smart account could be programmed to automatically send monthly rent payments from your cryptocurrency funds.

Unlike regular accounts that merely hold funds, smart accounts are autonomous agents capable of making decisions and performing complex operations based on embedded logic. It’s akin to a bank account that can independently transfer funds at specific intervals and under certain criteria.

Security issues of smart accounts

The unique security challenges of smart accounts are a significant concern, especially as protecting digital assets in the dynamic blockchain environment becomes critically important with the mass adoption of cryptocurrencies. Key security issues include code vulnerabilities, cyberattacks, and problems with access management and permissions. Any bugs or vulnerabilities in the code can have catastrophic consequences, such as the Genesis DAO project’s loss of $50 million in 2016 due to a smart contract vulnerability.

Several high-profile blockchain security breaches involving smart contracts have raised serious concerns, particularly among those actively engaged with blockchain technology. For instance, the infamous DAO hack led to the Ethereum network's hard fork, resulting in a new version of the blockchain—Ethereum Classic.

Once a smart contract is deployed on the blockchain, its code becomes immutable, making it extremely difficult to correct errors and vulnerabilities. This underscores the importance of thorough testing and code auditing before deployment. Otherwise, mistakes can lead to disastrous outcomes, as seen with CryptoKitties and Cryptozombies, where bugs in smart contracts resulted in the loss of valuable digital resources.

Best practices for smart account security

Given the risks associated with smart accounts, it’s crucial to follow best security practices throughout the lifecycle of smart contracts. Security should be an integral part of the smart contract design process, with careful consideration of contract logic, access structures, key management, and other critical aspects. For example, MakerDAO implemented a multi-tier permission structure and voting mechanism for managing its collateralized stablecoin system with security in mind.

Secure development of smart contracts involves using formal verification methods and proofs to ensure code correctness, engaging independent experts to audit the code before deployment, and applying secure programming patterns and standards, such as OpenZeppelin and Solidity Security Best Practices. Even after deployment, continuous monitoring of smart contract security is essential, as new threats and vulnerabilities can emerge at any time.

The future of smart account security

As blockchain and smart contract technologies evolve, new approaches and tools are emerging to enhance smart account security. AI and machine learning are being used for automatic vulnerability detection and error identification in smart contract code. Zero-Knowledge Proofs (ZKPs) are maintaining transaction privacy, and Secure Multi-Party Computation (MPC) is protecting confidential data by allowing computations on encrypted data without revealing the data itself. Formal verification provides mathematical proof of smart contract code correctness.

While quantum computers are still in early development stages, they may pose a future threat to the cryptographic algorithms used in blockchains. Malicious actors with sufficiently powerful quantum computers could potentially break traditional cryptographic systems used in blockchains. Smart contract developers should monitor this development and adapt their security systems using quantum-resistant algorithms.

Open-source communities play a crucial role in raising smart contract security standards. Collaboration, knowledge sharing, and tool improvement contribute to a more secure ecosystem. Examples of such communities include OpenZeppelin, the Ethereum Security Community, and Ethereum Cat Herders.

Education and awareness in smart account security

Ensuring the security of smart accounts involves education and awareness. This includes training developers, auditors, users, and other blockchain ecosystem participants on security best practices, threats, vulnerabilities, and prevention methods.

Smart contract developers should be well-versed in secure programming principles, security threats, and prevention techniques. This includes understanding common vulnerabilities like buffer overflows, coding errors, and access management issues, as well as using tools and methodologies for detecting and fixing such vulnerabilities.

Smart contract security auditors should be trained in using specialized tools and methodologies to analyze smart contract code, identify vulnerabilities, and recommend fixes. They should also stay updated on the latest threats and trends in blockchain security.

Users of smart accounts and decentralized applications also play a crucial role. They should be aware of security risks and best practices. This can include training on the secure storage and use of private keys, understanding phishing risks and other fraud types, and using tools and services to monitor the security of their smart accounts.

Conclusion

Smart account security is critically important in the era of digital transactions and decentralized applications. From secure development and auditing of smart contracts to education and awareness, compliance with regulatory requirements and security standards, and continuous monitoring and evaluation of security—all these aspects are key to ensuring the security of smart accounts.

I’d like you to reflect on your personal interactions when it comes to the internet. Consider the impact that the internet has had on society. Have these two things changed with time? Of course. Indeed, with more social media platforms and apps for mobile devices than ever before, we’ve yet another fundamental transition on the horizon…

The Web's Evolution

The web has developed a lot over the years, and its applications are nearly unrecognizable. Web 1.0, Web 2.0, and Web 3.0 are often used as benchmarks to describe the web's progression.

Web 1.0

Web 1.0 was the original web. Most participants were content consumers, while producers were mostly web developers who built websites with mostly text or graphic material. Web 1.0 ran from 1991 until 2004. Web 1.0 sites served static material rather than dynamic HTML. Sites had little to no interactivity and data was supplied through a static file system rather than a database. Web 1.0 is the ‘read-only’ web.

Web 2.0

Most of us have only used the web in its present incarnation (Web2). Web2 is the social and interactive web. You don't have to be a developer to create in the Web2 universe. Many applications are designed so that anybody may create. You can create and share a concept with the world. You can also post a video for millions of others to see, connect with your viewers, and comment on the video itself. Web2 is easy, and because of that, more and more individuals are becoming content creators. The web as it is now is fantastic in many aspects, but there are still several issues.

Privacy and security

Web2 applications are plagued by data breaches on an almost daily basis. If you want to know when your personal information has been leaked, there are websites devoted to keeping track of these incidents and alerting you.

Your data and how it is handled are completely out of your hands when it comes to Web2. When it comes to tracking and storing user data, many organizations do so without their customers' permission. The firms in charge of these platforms then possess and manage all of this data. Also at risk are users who reside in nations where exercising one's First Amendment rights might have unintended repercussions. Authorities often take down sites or confiscate funds if they suspect someone is disseminating information contrary to the official line. Governments can easily interfere, control, or shut down programs using centralized servers. By the same token, banks are digital and under centralized control — governments typically meddle in this area as well. During times of volatility, severe inflation, or other kinds of political instability, they have the ability to close bank accounts or restrict access to cash.

By starting from the bottom up, Web3 seeks to fix many of these flaws by reimagining how we design and interact with the internet and entities within it.

What exactly is Web 3.0?

Web2 and Web3 differ in a few ways, yet decentralization is a common theme in both. Web3 adds a few new features to the internet that we already use. It can be defined as the following:

• Verifiable
• Trustless
• Self-governing
• Permissionless
• Distributed and robust
• Stateful
• With built-in payments

When working with Web3, programmers seldom create and deploy applications that rely on a single server or database (usually hosted on and managed by a single cloud provider).

Instead, Web3 applications either run on blockchains, decentralized networks of many peer to peer nodes (servers), or a combination of the two that forms a crypto-economic protocol.  Many people in the Web3 community refer to these applications as "dapps" (decentralized apps), a word that you’ll see swimming around quite often.

An incentive for network members (developers) to deliver the best service possible is a key component of a robust and secure decentralized network.

Web3 is often discussed in conjunction with cryptocurrencies. This is due to the fact that many of these protocols rely heavily on cryptocurrencies. Anyone who wishes to become involved in one of the projects is given tokens (a cash incentive) in exchange for their time and effort.

In the past, cloud providers offered a wide range of services, including computation, storage, bandwidth, identity, hosting, and other online services.

Participating in the protocol in a variety of ways, both technical and non-technical, might be a source of income.

The protocol is often paid for by users in the same way that a cloud service provider like AWS charges its customers today. In Web3, however, the money flows directly to the network members. The elimination of middlemen that are both unneeded and inefficient is a hallmark of this sort of decentralization.

There are utility tokens provided by several online infrastructure protocols including Filecoin, LivePeer, Arweave, and The Graph. Many tiers of the network are rewarded with these tokens. This is how even native blockchain systems like Ethereum work.

How Web3 Handles Identity and Privacy

Here, at Passwork, security is paramount. This is where, technically, Web3 shines the most. Identity is handled quite differently within Web3. The wallet address of the user engaging with the app is usually used to link identities in Web3 applications. This means that wallet addresses, unlike Web2 authentication methods like OAuth or email + password, are fully anonymous until the user wishes to publicly link their identity to it.

It is possible for a user to build up their reputation over time if they choose to use the same wallet for various decentralized applications (dapps).

Authentication and identification layers may be replaced with self-sovereign identity protocols and tools like Ceramic and IDX. An RFP for a "Sign in with Ethereum" standard is currently being worked on by the founders of Ethereum.

Conclusion

Web 3.0's set of capabilities has the potential to fundamentally alter the way we see and utilize the internet, giving people more agency, spawning new sectors, and enabling networks to operate without a centralized authority or single point of failure. It’s just a matter of time until Web 3.0 becomes the new global standard.

As far as answering the question raised in the title — on paper, Web3 should eliminate most of the privacy and security issues faced with Web2. In practice — this is still not yet certain.