Cryptocurrencies are a digital asset, which typically leverages “blockchain” technology to deliver value in some way or service. The most widely adopted cryptocurrency is Bitcoin, which at its core is an immutable record of transactions. Bitcoin’s infrastructure is designed with security as a focal point, but as the amount of cryptocurrencies keeps increasing, does the same hold for newer ones?
The most popular cryptocurrency after Bitcoin (up to this point), is Ethereum. Ethereum is a cryptocurrency that just like Bitcoin, is a coin to perform transactions, which forms an immutable blockchain of those transactions. Ethereum, however, also introduced the idea of “smart contracts”. A smart contract is pre-programmed to assign users the right amounts of wealth based on certain conditions. For example, if you wanted to buy a ticket to a basketball game, traditionally the team would go through a third party and let them handle the transactions because of the complex nature of handling sensitive customer data and it being hard and expensive to protect, but Ethereum effectively creates an infrastructure where that third party is replaced with a system that works even better (more efficient and cheaper). On a very basic level, the Ethereum blockchain not only stores the actual transaction data on the blockchain, but it also creates a similar immutable record containing smart contracts and their output. Every time a smart contract is deployed, it needs to be executed and applied to all parties involved, and every time that happens, there is an associated cost which acts as the compensation for people turning their own processing power towards encrypting the information on the blockchain. Therefore, instead of having each individual deploy the smart contract independently of each other, the smart contract is stored directly on the blockchain, where it is executed and the output is recorded. Now all parties who have access to that information can call upon it directly from the blockchain (for no cost/processing power) and the cost for running it is split among them. This system provides an incredible amount of different ways to deliver great amounts of value for very low costs, but there are serious security risks that come with it.
Ethereum smart contracts work on a new programming language called Solidity with a technology and environment that is extremely new and foreign to a large amount of people. The ability to actually interact with code on the blockchain combined with the recency of the technology (and the fact that “industry standards” are in their infancy and constantly evolving), makes it vulnerable to exploits that are just waiting to be found.
