Centralization Leads to Smart Contract Hacks 

Shellboxes blog: Blockchain centralization is Associated with Security Risks

Ideally, blockchain is decentralized, but it does not happen in reality. Many DeFi protocols, projects, and smart contracts are highly centralized and rely on centralized tools and exchange platforms to carry out the processing. 

Blockchain centralization is Associated with Security Risks

To achieve blockchain decentralization, developers must put careful and extra effort into developing smart contracts. Due to such laborious work, some degree of centralization is a necessary evil. However, it is associated with many security concerns for smart contracts and users. Some of those concerns are as follows. 

Leaked Private Keys

Many DeFi hacks happened in the past due to private key leaks. Private keys are used to manage a DeFi smart contract, a single entry point. If a user loses his private keys, he loses his assets. According to Rekt, in 2021, more than $400 million were stolen only in four security breaches in 10 days due to compromised private keys. 

To overcome this issue, smart contracts should be deployed using multi-sig wallets. 

Scams & Rug Pulls

Scams and rug pull threats are also there due to smart contract centralization. The crypto industry is full of news when a project is hyped up to gain investment, and then creators run away with all the investments and disappear. 

Such scams can be reduced when there is no centralized system. A project should not have a mechanism where a team can unilaterally remove invested funds from the project. 

Single Private Key vs. Multisig wallet

As already mentioned, many DeFi projects do not use multi-signature wallets. It means there is only a single key to manage the contract on the blockchain, and if a malicious actor gets that key, he can enable many scams. 

A similar case was observed with the Bent Finance hack in 2021. Such attacks can be mitigated using a multi-signature wallet rather than a single private key. 

Avoid Smart Contract Centralization

It is easier to code when centralization is introduced. But it makes smart contracts prone to many cyberattacks. 

However, smart contract audits can identify and rectify many smart contract vulnerabilities. Furthermore, you can contact our smart contract security experts to learn about the optimal design of your smart contracts and how to avoid hacks. Contact us at [email protected].

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