The capabilities of the internet have increased over time since its initial iteration in 1980. The third stage of the internet’s evolution has led to the decentralization of the business model.
Open standards and protocols distributed through “permissionless” blockchain leveraging smart contracts is the compelling innovation brought by web3.
With that in mind, looking at the adoption rate of Web3 and crypto, Europe has well-positioned itself to be the hub for crypto innovations holding the largest crypto economy.
Let’s go through the following sections to learn what the Web3 evolution means for European regions and the dangers associated with the emerging technology. As an added benefit, this post also includes a one-stop guide on overcoming challenges.
Europe With The Largest Crypto Economy
The predominance of crypto in Europe started gaining pace in July 2020, when the transaction volumes saw significant growth. The rapid acceleration brought Europe to the top spot for recording 25% of the global crypto activity and receiving $1T in digital assets.
According to Chainalysis, the transaction volume in Europe grew from $1.4 billion in July 2020 to $46.3 billion in June 2021. It also marked Europe as the biggest source of liquidity to cryptocurrency investors and North America as its strong trading partner.
Fig 1: Here’s a distribution of European countries in terms of the value received by the DeFi protocol
The key factor for crypto adoption in Europe is the support from both public and private institutions with a large pool of Web3 developers. Along with it, greater regulatory clarity for cryptocurrencies when compared to Asia pacific and North America favors developing Web3 in European regions.
Open financial systems and large institutional-sized crypto transactions are other reasons that drive the most growth of DeFi in Europe.
Inside The Web3 Revolution - Web3 Vulnerabilities
Alongside DeFi growth, the hacks are worsening more than ever. On the brighter side, it implies the familiarity that cryptocurrencies are acquiring while, on the other hand incurring a hefty fund loss on web3 investors.
Data shows that money lost to DeFi hacks in the first four months of 2022 alone was $1.57 billion, which already exceeded the $1.55 billion amount lost to the total hacks that happened in 2021.
So, what’s the reason behind the rising tide of crypto thefts? The attack trend in Web3 is the exploitation of smart contract code errors, manipulating the external data fed into smart contracts for their own gains and other social engineering attacks.
Let’s look at some insights on the primary target of hacks in the current trend.
Cross-chain bridge hacks
Cross-chain bridges, including Axie Infinity, Nomad bridge, etc., are the most attacked ones this year. It’s because of its large surface area that offers huge scope for attack vectors.
Cross-chain bridges are used to transfer assets from one blockchain to another by the locking and minting mechanism. In turn, all of these activities rely on smart contracts wherein anywhere the code’s logic is compromised results in the attacker stealing assets.
DeFi protocol - The Hacker’s spot
The Total value locked in DeFi has significantly dropped by more than 67% in 6 months of 2022. From $161 billion in April, the 67% loss corresponds to $ 51.2 billion in Oct’22.
The record-breaking number of web3 hacks in 2022 contributes to the major portion of the decline in TVL. The DeFi platforms fell for attacks due to one of many reasons, such as contract vulnerabilities, flash loan attacks, phishing and private key compromise.
Not to mention Fei Protocol, Cream Finance, and Grim Finance are some of the DeFi protocols that were hacked.
Cruciality Of Smart Contract Code
Looking at the hack scenarios of 2022, experts warn to take security issues seriously. Startups in crypto often don’t pay significant attention to the security of the code, which leads to hacks.
It begins by strengthening the code so that it is impenetrable and too costly for an attacker to perform attacks. Once after the development of the code, smart contract audits play a key role. It involves reviewing the code line by line to trace the imprints of any flaws.
Other measures include routine code checkups and monitoring tools to protect the code after deployment.
Smart contract auditing is becoming more and more necessary as the field of decentralized technology expands. Users’ money is at risk from sophisticated attacks on Web3 protocols and smart contracts. The stakes are also quite high because there are billions of valuables locked in different protocols. As a result, Web3 projects go to extraordinary lengths to verify that their code is error-free.
Our Contribution To Web3 Security
QuillAudits is spreading its wings with a diverse range of Web3 service offerings. Auditing 700+ web3 projects, saving tens of billions in losses, is making the brand emerge as a prominent leader in Web3 security.
Owning something on the internet has emerged as a core new concept. We see Web3 as the next internet iteration with decentralization at its core.
But businesses are skeptical about BUIDLING in Web3 due to underlying security concerns.
We believe businesses can BUIDL and GROW in Web3 with a product that people want— and that can be done “SECURELY”. And we make it possible with our extensive security practices, an ecosystem of Web3 security tools, and a community of security professionals.
Preetam Rao, Co-founder & CEO of QuillAudits
Co-founder & CEO of QuillAudits, one of the leading Web3 security firm, has extensively worked with some cutting-edge Blockchain Projects worldwide. Experienced smart contract auditor with proficiency in Blockchain, cloud, and virtual reality and was previously working with Times Group, one of the largest media groups in India.