Nonfungible tokens (NFTs) are big business — but come with significant cyber- and crypto-security risk. Part of the problem is that the NFT landscape is poorly understood. They also make up part of a massively overpriced blockchain-based network that could open the door to new security threats.
So, how do companies prepare for the coming storm of NFTs and similar crypto-markets? How do they proactively defend key assets?
Putting the Fun in Fungible
First things first: to help deflect any potential defensive dilemmas, IT security pros need to understand what an NFT is. If you’re not sure, you’re in good company. The concept isn’t exactly straightforward. Most articles focused on nonfungible frameworks are more concerned with hype than offering a holistic, simplistic definition of an NFT.
It all starts with the notion of ‘fungibility.’ As defined by Investopedia, “fungibility is the ability of a good or asset to be readily interchanged for another of like kind.” Physical currency offers an easy example — one dollar bill can be readily exchanged for another without any impact to the owners. While the bills have different serial numbers, they are functionally the same and can be exchanged at will. Assets that aren’t interchangeable — even if they’re similar or nearly identical — are nonfungible. Consider two cars, one dilapidated and one brand new. While they’re similar, they’re not the same, and an exchange would impact both parties.
In the realm of digital payment, bitcoins are fungible. While they have unique markers, one is functionally identical to another. NTFs, meanwhile, represent unique digital assets that people can’t duplicate or directly exchange with another of equal value.
What Does NFT Ownership Really Mean?
The result is that NFTs are a fun idea, in theory. Instead of a fungible asset like physical cash that can be broken into its component parts and still retain value, NFTs have unique properties that can’t be altered. One of the most popular mediums for NFTs is art; digital representations of physical images that go to the highest bidder. As noted by the New York Times, one of these tokenized JPGs recently sold for $69 million dollars.
What’s important to note is that owning an NFT doesn’t confer ownership of the physical asset itself. It only confers ownership of the unique digital token. In the case of the art piece above, the artist retains the rights to the original work and the rights to produce or sell copies. The NFT owner, meanwhile, has a record of the token transaction along with a hash code showing ownership. They can’t sell the asset itself but can resell the token if they wish.
Bottom line? NFTs offer a unique approach to blockchain-based interactions that could offer a new way to transfer and hold digital value.
The Trouble With NFT Tokens and Cryptocurrency Security
Beyond the massive cost for many of these tokens, there’s also the issue of theft; if accounts are compromised and NFTs stolen, they could be sold to the highest bidder. The purchase would leave the original owner out in the cold.
There’s an even bigger problem with nonfungible tokens, as noted by Anil Dash, one of the minds behind the NFT concept back in 2014: digital shortcuts. When Dash and artist Kevin McCoy first developed the idea of NFTs, they ran into a technological limitation. Most blockchain records weren’t big enough to hold an entire image file. So they used a workaround — blockchain-encrypted web addresses that acted as links to NFT assets.
Today, that workaround is still in use. In practice, this means that NFT buyers aren’t really getting blockchain-based tokens that represent the asset they’re buying. They’re getting access to links that exist on live websites and which companies manage to verify the token. If these companies go out of business or an attacker breaks into these websites, any NFT value could suddenly disappear.
There’s also another track for token trouble. What exactly is being sold? As noted by Coindesk, an attacker recently tried to sell a zero-day exploit as part of an NFT collection, possibly making a pretty penny in the process and exposing enterprise networks to risk. Even more worrisome is that this risk will only increase as markets diversify and NFT prices stabilize. This area lacks strong regulation. That means it may be almost impossible for companies to ensure exploit-based data isn’t sold to the highest bidder and then used to compromise their networks.
NFTs emerged as both a valuable asset and possible attack vector. Now, enterprises must account for these tokens in evolving security strategies. In practice, defense against NFTs requires a three-pronged approach:
Increased Asset Vigilance
The nonfungible aspect of NFTs coupled with their blockchain-based nature makes them a solid long-term investment for many companies. However, NFT marketplaces are often subject to attacks such as phishing, distributed denial of service and ransomware, meaning IT teams must keep a close eye on assets in response to emerging threats. There’s also a need to proactively monitor unique intellectual property stored on corporate networks. That way, you can ensure attackers don’t exfiltrate it and convert it into an NFT without corporate knowledge.
Improved Zero-Trust Frameworks
If attacks can compromise corporate accounts and gain access to blockchain credentials, they could transfer ownership of NFTs. Given the one-way nature of secure blockchain transactions, getting these assets back, even with proof of wrongdoing, may be difficult or impossible.
Improved zero trust architecture is an ideal way to help solve this problem before it starts. By using advanced zero trust frameworks that focus on confirming rather than assuming identity, it’s possible to limit the number of privileged users who have access to NFTs and reduce the risk of asset loss.
Enhanced Network Monitoring
Along with zero trust security, enterprises must also deploy active network monitoring tools capable of pinpointing possible exfiltration issues before blockchain access occurs. By moving beyond simple access and authentication tools to active behavioral monitoring and analysis solutions, organizations can proactively terminate potentially problematic sessions before attackers are able to infiltrate NFT data.
Managing NFT Market Opportunity
The NFT market is already starting to cool. Average prices have fallen more than 50% in three weeks, as have sales volumes — but it’s unlikely that the nonfungible framework will collapse entirely. While recent media attention has put the spotlight on these tokens the market has enjoyed steady gains over the past year. It will likely remain a source of long-term value from asset retention at scale.
For enterprises, the meteoric rise and fall of NFTs, combined with their sustained value proposition, means this isn’t a security threat they can ignore. You’ll need to put up more than token resistance to ensure robust asset security.
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Author: Douglas Bonderud