Ethereum Survives “Severe Threat”

The Intelligent Insurer #18 — Ethereum holders had a close call after the Berlin upgrade addressed what was considered a “severe threat”

This week’s Intelligent Insurer covers a code flaw in the Ethereum network that could have resulted in catastrophic losses for Ethereum holders. Before detailing this development, we provide an update on the progress of Insured Finance.

Insured Finance has been making phenomenal development progress. Last week, key code changes related to the UX were implemented. The UX for various functionalities of the two-sided insurance marketplace has now been finalized and implemented into the code. For instance, the process for requesting and providing insurance has now been implemented with a sublime frontend UX.

Other elements of the frontend are also being improved. There has been significant progress made surrounding several components that are being developed in ReactJS. These components are also approaching their final format.

On the backend, the team has also reached major milestones over the past week. The smart contracts that will be utilized within the marketplace have been put through a rigorous testing process. Insured Finance prioritizes security and we are carrying out intensive tests on the platform’s smart contracts to ensure that user funds will be entirely secure.

Moreover, several APIs have been tested for implementation with the stablecoin insurance product. It is essential that reliable APIs are integrated with this offering. It is also important that price data is locked during the final part of securing insurance. This functionality has been implemented into the code. Moving into this week, we will begin integrating third-party oracles into the Insured Finance marketplace. This will provide reliable data for a variety of functions in the marketplace.

Ethereum Foundation Discloses Severe Threat to Network

The software underpinning the Ethereum blockchain was recently changed in what has been titled the Berlin upgrade. The Berlin upgrade was implemented via a hard fork on the 15th of April 2021. The Ethereum team has posted an announcement on their official website that the upgrade was deployed to solve a “severe threat” that exposed the network to attacks.

It is fortunate for Ethereum users that the threat was only unveiled after it was fixed. The memory of the infamous DAO breach 5 years ago serves as a reminder of what happens when attackers find bugs before the development team. Given the sheer scale and size of the Ethereum network, a successful attack on the code underpinning its blockchain would reverberate across the entire cryptocurrency industry. The majority of projects still choose Ethereum as their primary choice to build decentralized applications and smart contracts.

In the latest Intelligent Insurer, we analyze the Ethereum Berlin upgrade and the possible attack vectors that it addressed. We also highlight how Ethereum holders can take measures to protect themselves against potential future setbacks.

Ethereum Berlin Upgrade and Attack Vectors

The first tesnet of the Ethereum Berlin code, Ropsten, was launched on March 10th. One month later, the mainnet was released. Before the mainnet launch, the upgrade was also trialled on two other testnets, Goerli and Rinkeby, putting the upgrade through a rigorous testing process.

(Source: Ethereum.org)

The growth of DeFi is at the essence of why the upgrade was needed. It’s growth brought a growing demand for assets and blockspace on the Ethereum network. As a result of this increased demand, the gas prices for carrying out computations on the Ethereum network, raising certain vulnerabilities. The Ethereum Berlin upgrade solved this problem by introducing changes to the code. According to the Ethereum Foundation, the threat was an “open secret” and lingered for over 2 years. It was noted to have the capability of crippling the mainnet at a cost of less than five-figures.

In the event that such attacks materialize, it is extremely costly for any stakeholders. In 2016, a breach of the DAO protocol resulted in 3.6 million ETH being retrieved by the attacker. This was the event that catalyzed the hard fork split between Ethereum and Ethereum Classic. Given the vast growth in the Ethereum ecosystem since this attack, a successful base layer attack today would likely cause even further disarray and change.

Protecting Against Risks

Network breaches are relatively common in the blockchain industry, especially among smaller and newer protocols. Larger-cap networks emphasize security and have yet to experience a major exploit on their base layer. However, such an event is certainly not impossible. Many large-cap networks continue to undergo different levels of upgrade for the reasons of both security and scalability.

Network vulnerabilities is one of the reasons why digital asset insurance is becoming increasingly relevant. Many users adopt flexible cryptocurrency insurance solutions that attend to their specific needs, based on individual preferences. Insured Finance allows users to secure tailored insurance for their digital assets. They enable users to hedge against risks like network breaches, stablecoin failure, exchange hacks, and other industry-related setbacks.

Ethereum may have escaped a potential attack. However, that does not mean that more vulnerabilities will not be identified in the future. The Ethereum ecosystem is growing at breakneck speed and such fast-paced innovation exposes the network to greater risks. The Ethereum development team deserves commendation for their transparency. However, there is no denying there was a significant risk for all Ethereum holders. With that in mind, Ethereum holders need to take further measures to protect themselves against unforeseen events.

About Insured Finance

Insured Finance is a decentralized, peer-to-peer insurance marketplace. Built on the Polkadot blockchain, Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.