•  
  •  
 

Abstract

This study aims to understand the vulnerabilities faced by enterprises operating on token-based blockchain businesses and the role of legal, due diligence procedures in mitigating such risks. It employed the Preferred Reporting Items for Systematic Reviews and Meta-Analyses method and sourced data from DeFillama, a platform tracking decentralized finance developments, to categorize hacking incidents into five major groups: Ecosystem, Infrastructure, Protocol Logic, Rugpull, and Smart Contract Language. The findings highlight that Infrastructure attacks, mainly through Private Key Compromise, are the most damaging. They cause losses of over 800 million dollars between 2020 and 2023. It necessitates comprehensive and adaptable legal, due diligence strategies focusing on jurisdictional legal frameworks, platform usage terms, regulatory compliance, and potential legal issues. The study underscores the importance of further research to evaluate and enhance the effectiveness of these measures in addressing the unique challenges of blockchain technology, which are crucial for enhancing the resilience and sustainability of blockchain enterprises, thereby promoting global trust in this emerging field.

DOI: https://doi.org/10.22304/pjih.v11n1.a2

References

Books

Chiu, Iris H.-Y. Regulating the Crypto Economy: Business Transformations and Financialisation. UK: Bloomsbury Publishing, 2021.

Dai, Chris. “DEX: A Dapp for the Decentralized Marketplace.” In Blockchain and Crypto Currency: Building a High-Quality Marketplace for Crypto Data, Makoto Yano, Chris Dai, Kenichi Masuda, and Yoshio Kishimoto (ed.) Economics, Law, and Institutions in Asia Pacific. Singapore: Springer, 2020.

Fadhillah, Yusra (et.al.) Teknologi Blockchain dan Implementasinya. Medan: Yayasan Kita Menulis, 2022.

Habib, Farrukh and Salami Saheed Adekunle. “Case Study of Bitcoin and Its Halal Dimension.” In Halal Cryptocurrency Management, Mohd Ma’Sum Billah (ed.) Cham: Springer International Publishing, 2019.

Howson, Peter. Checklists for Due Diligence. United Kingdom: Routledge, 2017.

____________. Due Diligence: The Critical Stage in Mergers and Acquisitions. United Kingdom: Taylor & Francis, 2017.

Infante, Roberto. Building Ethereum Dapps: Decentralized Applications on the Ethereum Blockchain. New York: Simon and Schuster, 2019.

Krieger, H., A. Peters, and L. Kreuzer. Due Diligence in the International Legal Order. UK: OUP Oxford, 2020.

Lynn, Theo, John G. Mooney, Pierangelo Rosati, and Mark Cummins (ed.) Disrupting Finance: FinTech and Strategy in the 21st Century. Cham: Springer International Publishing, 2019.

Treiblmaier, Horst and Roman Beck (ed.) Business Transformation Through Blockchain: Volume I. Cham: Springer International Publishing, 2019.

Other Documents

A. Crenshaw, Caroline. “Statement on DeFi Risks, Regulations, and Opportunities.” Accessed on July 17, 2022, https://www.sec.gov/news/statement/crenshaw-defi-20211109.

Anghelache, Constantin, Mădălina-Gabriela Anghel, Gabriel Ștefan Dumbravă, and Daniel Dumitru. “Perspectives of the Development of World Economy in the Blockchain Conditions and Big Data.” Proceedings of the International Conference on Applied Statistics 1, no. 1 (2019): 44–59. https://doi.org/10.2478/icas-2019-0005.

Bhaskar, Vijaya. “Unchecked Return Value in Smart Contracts as an Attack Surface.” Accessed on February 21, 2022. https://coinsbench.com/unchecked-return-value-in-smart-contracts-providing-an-attack-surface-dab2eed64251.

Chauhan, Harsh Singh and Jagjeet Jena. “Decentralized Finance: On Blockchain and Smart Contract-Based Financial Markets.” International Journal of Trend in Scientific Research and Development (2021): 42-54.

Chong, Alain, Eric Lim, Xiuping Hua, Shuning Zheng, and Chee-Wee Tan. “Business on Chain: A Comparative Case Study of Five Blockchain-Inspired Business Models.” Journal of the Association for Information Systems 20, no. 9 (2019): 1310-1339, https://doi.org/10.17705/1jais.0056.

Coinmarketcap, Chart. “Total Cryptocurrency Market Cap.” Accessed on December 28, 2021. https://coinmarketcap.com/charts/.

Curtis, Steven Kane. “Business Model Patterns in the Sharing Economy.” Sustainable Production and Consumption 27 (2021): 1650–1671. https://doi.org/10.1016/j.spc.2021.04.009.

DappRadar. “Top BNB Chain Dapps.” Accessed on July 17, 2022. https://dappradar.com/rankings/protocol/binance-smart-chain.

_________. “Top Ethereum Dapps.” Accessed on July 17, 2022. https://dappradar.com/rankings/protocol/ethereum.

_________. “Top Fantom Dapps.” Accessed on July 17, 2022. https://dappradar.com/rankings/protocol/fantom.

DefiIlama DefiIlama, “Total Hacks Value." Accessed on December 13, 2022. https://defillama.com/hacks.

Elci, Aylin. “Decentralized Finance Heats up: New Approaches Needed for Industry Transformation.” Accessed on July 17, 2022. https://www.weforum.org/press/2021/06/decentralized-financecouldimprove-the-industry-but-new-approaches-to-regulation-are-needed/.

García-Monleón, Fernando, Ignacio Danvila-del-Valle, and Francisco J. Lara. “Intrinsic Value in Crypto Currencies.” Technological Forecasting and Social Change 162 (2021): 1-9. https://doi.org/10.1016/j.techfore.2020.120393.

Graebner, Melissa E. “Caveat Venditor: Trust Asymmetries in Acquisitions of Entrepreneurial Firms.” Academy of Management Journal 52, no. 3 (2009): 435–472. https://doi.org/10.5465/amj.2009.41330413.

Guadamuz, Andrew. “What Do You Actually Own When You Buy an NFT?” Accessed on July 14, 2022. https://www.weforum.org/agenda/2022/02/non-fungible-tokens-nfts-and-copyright/.

Infosec Resources. “What is Integer Overflow and Underflow?” Accessed on December 13, 2022. https://resources.infosecinstitute.com/topic/what-is-is-integer-overflow-and-underflow/.

Kadenzipfel. “Smart-Contract-Attack-Vectors/Uninitialized-Storage-Pointer.Md at Master · Kadenzipfel/Smart-Contract-Attack-Vectors.” Accessed on December 13, 2022. https://github.com/kadenzipfel/smart-contract-attack-vectors.

Karimov, Bedil and Piotr Wójcik. “Identification of Scams in Initial Coin Offerings With Machine Learning.” Frontiers in Artificial Intelligence 4 (2021): 1-16. https://doi.org/10.3389/frai.2021.718450.

Leonhard, Robert Donald. “Decentralized Finance on the Ethereum Blockchain.” SSRN Electronic Journal (2019): 1-22. https://doi.org/10.2139/ssrn.335973.

Li, Bixin, Zhenyu Pan, and Tianyuan Hu. “ReDefender: Detecting Reentrancy Vulnerabilities in Smart Contracts Automatically.” IEEE Transactions on Reliability 71, no. 2 (2022): 984–999. https://doi.org/10.1109/TR.2022.3161634.

Liu, Mohong. “Research on Legal Regulations of Blockchain.” Advances in Social Behavior Research ASBR 1 (2021): 33–40. https://doi.org/10.54254/asbr.2021005.

Mohamed, Hazik. “Decentralizing Finance via Cryptocurrencies and Tokenization of Assets and Peer-to-Peer Platforms.” International Journal of Islamic Economics 3, no. 1 (2021): 1-15. https://doi.org/10.32332/ijie.v3i1.3128.

Moringiello, Juliet M. and Odinet, Christopher K. “The Property Law of Tokens.” Florida Law Review 607 (2022): 607-671. http://dx.doi.org/10.2139/ssrn.3928901.

Multazam, Mochammad Tanzil. “Exploring the Legal and Policy Implications of Non-Fungible Tokens.” Jurnal Politik Dan Pemerintahan Daerah 4, no. 2 (2022): 293–303.https://doi.org/10.36355/jppd.v4i2.58.

_________________________. “Unleashing the Potential of DeFi: A Comprehensive Guide to Maximizing Rewards While Mitigating Risks.” Ganaya: Jurnal Ilmu Sosial Dan Humaniora 4, no. 2 (2021): 906–918.

_________________________. “Protocol Hack in Cryptoworld.” Accessed on July 26, 2023. https://doi.org/10.5281/zenodo.8185509.

Multazam, Mochammad Tanzil, Regita Amanah Huzairin, Sandika Putra Pratama, and Irwansyah Irwansyah. “Is It Legal to Provide Liquidity on the Vexanium Decentralized Exchange in Indonesia?” Yustisia Jurnal Hukum 12, no. 1 (2023): 29–46. https://doi.org/10.20961/yustisia.v12i1.69007.

Nakamoto, Satoshi. “Bitcoin: Sebuah Sistem Uang Tunai Elektronik Peer-to-Peer.” Accessed on July 14, 2022. https://bitcoin.org/bitcoin.pdf.

Nowiński, Witold and Miklós Kozma. “How Can Blockchain Technology Disrupt the Existing Business Models?” Entrepreneurial Business and Economics Review 5, no. 3 (2017): 173–188. https://doi.org/10.15678/EBER.2017.050309.

Open Source Initiative. “Licenses & Standards | Open-Source Initiative.” Accessed on December 24, 2022. https://opensource.org/licenses.

Redfox Security. “Reentrancy Attacks in Smart Contracts - Redfox Security.” Accessed on December 13, 2022. https://redfoxsec.com/blog/reentrancy-attacks-in-smart-contracts/.

Santoso, Wahyu Yun (et.al.) “Governing Blockchain-Based Token in Indonesia: Legal and Technical Perspective.” Brawijaya Law Journal 7, no. 1 (2020): 108–128. https://doi.org/10.21776/ub.blj.2020.007.01.08.

Tasca, Paolo, and Claudio J. Tessone. “A Taxonomy of Blockchain Technologies: Principles of Identification and Classification.” Ledger 4 (2019): 1–39. https://doi.org/10.5195/ledger.2019.140.

Tauda, Gunawan A, Andy Omara, and Gioia Arnone. “Cryptocurrency: Highlighting the Approach, Regulations, and Protection in Indonesia and European Union.” BESTUUR 11, no. 1 (2023): 1–25. https://doi.org/10.20961/bestuur.v11i1.67125.

Uniswap. “Uniswap Interface.” Accessed on July 14, 2022. https://app.uniswap.org/#/swap?chain=mainnet.

Yang, Rebecca (et.al.) “Public and Private Blockchain in Construction Business Process and Information Integration.” Automation in Construction 118 (2020): 103276. https://doi.org/10.1016/j.autcon.2020.103276.

DOI

https://doi.org/10.22304/pjih.v11n1.a2

Download

Share

COinS