NFT Thefts Reveal Security Risks in Coupling Private Keys & Digital Assets

There's a new type of art heist in the world, one involving unique digital assets known as nonfungible tokens (NFTs) that are sold on blockchain-based marketplaces. A few weeks ago, NFTs hit the mainstream news when one was sold for nearly $70 million at Christie's, which the auction house said was the third-highest selling price for a piece of art by a living artist. In separate news the following week, several NFT owners reported that hackers had compromised their accounts on a digital art marketplace. While cryptocurrencies like Bitcoin have been targeted by hackers, this is a first for NFTs, and it highlights traditional security concerns inherent in the design of centralized systems.

The attack itself was standard, and it targeted the relatively weakest links in the network. It appears that the thieves compromised the victim accounts in the Nifty Gateway marketplace primarily by stealing user passwords, likely a result of phishing. Once they were in the accounts, the thieves either stole artwork owned by the victims or used credit cards attached to the accounts to buy NFT art that was then stolen. As NFTs exist on a blockchain, and owing to their design, the very nature of blockchain transactions makes it nearly impossible to get stolen NFTs returned to their rightful owners.

Role of Private Keys
NFT ownership is managed via a private key that serves as a sentinel to all the assets in a specific digital wallet. Anyone holding the private key can get access, as well as move the NFTs out of the digital wallet and resell them. NFTs are in essence nonduplicable certificates of ownership for any digital asset. Because each digital asset is inextricably linked to its authentication mechanism — the key — any theft or compromise of it could mean the corresponding NFT may not be recoverable by the rightful owner. Once it's out of the owner's possession, good luck trying to get it back.

Like other blockchain-based platforms, NFT marketplaces are targeted by hackers. The centralized design of the marketplaces and the high value attached to NFTs make them prized targets. They can be subject to a range of attack vectors, including phishing, insider threats, supply chain attacks, brute-force attacks against account credentials, ransomware, and even distributed denial-of-service attacks.

No Strong Assurance Against Account Takeover
Blockchain design encompassing NFTs provides certain fundamental properties applicable to security, such as immutability and integrity checks. Immutability inherent in blockchain design is considered one of the core tenets of any transaction-security strategy. It's introduced to create a single source of truth and supports nonrepudiation, which is crucial for accountability of actions.

But this still does not guard the platform against attacks leading to an account takeover (ATO), a major threat. There is a clear, exploitable scenario here as once an NFT has been transferred to someone else's wallet or sold, it may not be recovered by the sender or a third party. Enabling private keys to serve as gatekeepers is bound to create concentrated risk in one area, leading to a single-point-of-failure scenario. Even adding additional layers of security by exercising defense in depth may not serve as a foolproof counter if an attacker uses a sophisticated, relatively noiseless, and slow-rate attack to stay under the radar to breach such controls.

NFT Security Flaws Must Be Addressed
There is a general lack of security awareness in the NFT market, and this will need to be addressed, or there will be more incidents. While blockchain technology is promising as a security enabler for financial transactions, it has security issues, particularly related to storage in online wallets and their vulnerability to attacks. Strong passwords and multifactor authentication are certainly crucial. According to Nifty Gateway, none of the affected accounts had two-factor authentication enabled, and valid account credentials were used to access the accounts.

To improve the security of these markets, I recommend these security best practices:

The novelty and buzz around NFTs mean these markets will grow rapidly this year, expanding beyond the traditional realm of artwork. However, the marketplaces need to address the security issues now, or risk lawsuits and having cyber thefts scare customers away.