Key Considerations and Best Practices for Building Safer Decentralized Applications

Web3 and blockchain technology promise a more open, decentralized internet, but also come with new security risks that need to be addressed. This article provides an overview of key security considerations and best practices when building Web3 security applications.

1. Use a hardware wallet for cryptographic keys

Cryptographic keys are the most important security consideration when dealing with cryptocurrencies and blockchain-based assets. Private keys in particular give the holder full control over funds, and if compromised can lead to irreversible theft and loss. Due diligence should be used while managing and storing private keys because of this.

Using a hardware wallet is the choice that is the safest. These wallets store private keys in a protected, offline environment, making them immune to threats like hacking, remote access malware, and viruses that may affect a regular software wallet or exchange account. Keys remain isolated within the hardware wallet’s secure microcontroller, protected by PIN codes and other authentication mechanisms.

Even if a user’s computer is compromised, their hardware wallet private keys cannot be remotely accessed by an attacker or malicious program. The keys only get exposed when making an actual signature-based transaction, after authenticating on the hardware device. This makes stealing the keys significantly more difficult. On the other hand, keeping keys on a regular exchange account or hot wallet is far more risky. These are continually connected online, increasing exposure to attacks via phishing, hacking, or malware. The keys may also be stored on servers or databases that could be breached. The extra levels of protection offered by hardware wallets mitigate these risks.

2. Practice key management hygiene 

Private keys are the most sensitive information in cryptography and blockchain technology. Having poor key management hygiene can lead to irrecoverable loss or theft. Several practices are recommended to mitigate risks:

First, private keys should never be shared with anyone, under any circumstances. You alone should have access and control. Don’t reveal keys in online forums, to tech support staff, or to services offering improbable high returns.

Also take care to not accidentally expose keys through careless handling. Don’t screenshare desktops with exposed keys, don’t save keys in easy to access text files or emails, and use trusted apps for key generation. For backup, utilize the seed phrase method offered by most wallets. This phrase allows you to recover all keys and should be written down and stored extremely securely – ideally in offline formats like paper or engraved steel. Avoid uploading seed phrases anywhere.

3. Leverage security audits and bug bounties

Smart contracts are immutable programs that control digital assets on blockchains. As such, having vulnerabilities or bugs can lead to exploitation and irrecoverable losses. Two best practices for smarter contract security are professional audits and bug bounty programs.

Many organizations offer professional-grade security reviews of smart contract code. They manually analyze the logic for vulnerabilities, anti-patterns, gas optimization issues, and documentation. Based on their findings, teams can then fix or improve code quality before deployment. The upfront cost of audits is well worth avoiding a major hack down the line.

Bug bounty programs take a crowdsourced approach by incentivizing white-hat hackers to actively find flaws and exploits. Bounties are offered for discovering specific issues that are then discreetly reported to the developers. Popular platforms like Immunefi operate specialized programs for major blockchain projects and DeFi applications. Participants can also create customized programs.

4. Monitor for vulnerabilities and exploits

The open source nature of most smart contract and blockchain development creates inherent security risks that need ongoing vigilance. New vulnerabilities or exploits can emerge in popular core contracts, libraries, APIs, and platforms. Keeping track of discoveries is key for risk mitigation.

Monitoring community channels allows one to stay on top of issues in critical open source dependencies. Following channels also surfaces early warnings. Major bug discoveries often make immediate headlines.

It’s also important to keep tabs on activity related to the specific dApps and platforms being used. Monitoring channels of popular frameworks can reveal attacks and problems. Platforms also track issues across applications. Being an early adopter of fixes is critical. For smart contract developers, this means promptly updating to newer versions of any affected dependencies in their stack upon disclosure. It also pays to test contracts after upgrades to confirm incompatibility didn’t arise.

5. Use multi-factor authentication

In addition to using passwords alone as security, multi-factor authentication is a crucial security method.  For securing cryptocurrency assets, enabling MFA options on exchanges and wallet apps is strongly recommended.

With MFA enabled, accessing an account requires verifying through two or more credentials – typically a password plus a randomly generated code from an authenticator app or hardware token. Even if the password is compromised somehow, the account remains secure without the additional factor.

Major cryptocurrency exchanges and wallet providers had MFA options. For exchanges, enabling MFA introduces approval requirements for actions like withdrawals, trades, and deposits. Wallet apps may require an MFA code to be entered before signing transactions.

6. Beware of phishing attacks

Phishing remains one of the top threats to cryptocurrency users that can lead to stolen assets and compromised accounts. Attackers use extremely deceptive emails, websites, ads and social media profiles impersonating legitimate providers to trick victims into revealing wallet keys, seed phrases or passwords. Constant vigilance is required to avoid falling for these scams.

Classic warning signs include suspicious sender addresses on emails, misspelled domain names, and slight visual inconsistencies on websites or profiles intended to mimic the real ones. Attackers often create a false sense of urgency via warnings about account lockouts or tempting offers to entice victims.

It is critical to manually validate the authenticity of any unsolicited communication before taking action. Verifying the sender email or checking certificate details on sites can uncover spoofing. Visiting the official website and contacting support can also serve to confirm legitimacy.

7. Keep contracts and systems updated

Due to the immutable and irreversible nature of blockchain transactions, smart contracts and related systems require vigilant maintenance and timely upgrades in response to new vulnerabilities. Developers should regularly update to latest stable releases.

Open source contract libraries provide security fixes as flaws are discovered. Upgrading to newer versions prevents exposure to known bugs that could lead to exploits. The same applies to supporting frameworks which can undergo security hardening.

For live contracts already deployed on mainnets, consider engineering upgradeability features that allow patching vulnerabilities without affecting application logic. Proxy patterns and smart contract registries enable this capability.

Conclusion

As Web3 application security ecosystems grow, making security a priority is crucial to preventing major breaches or exploitations. Following best practices around keys, audits, monitoring, authentication and vigilance can help mitigate risks. A proactive approach to security is essential.