Solana is a public blockchain created by Anatoly Yakovenko in 2017 to create a blockchain with similar functionality as existing blockchains but at a cheaper price. The purpose of Solana’s creation was to solve the problems involving blockchains: decentralization, security, and scalability. Solana blockchain uses a hybrid mechanism that allows decentralization at higher speeds while being able to support multiple transactions at the same time that is both safe and secure. Solana platform is centralized around one node that leads or collects all the data that would be distributed to other nodes. This reduces the need for more work checking between nodes the information missing and then implementing them.
The Solana blockchain is one of many cryptocurrency blockchains. The Solana blockchain is centralized around the transaction of the cryptocurrency name SOL. All types of cryptocurrency are stored in cryptocurrency wallets. In essence, cryptocurrency wallets are comprised of encrypted code to keep user cryptocurrency safe and accessible. Private keys, or passwords, identify the participant and prove ownership of crypto. Cryptocurrency wallets only ensure the private keys that would allow the user to access the cryptocurrency storage.
Types of Cryptocurrency Wallets
Two main types of cryptocurrency wallets are important to acknowledge: hot wallets and cold wallets. Hot wallets are less secured wallets that are connected to the internet. It is more easily accessible due to the internet. Hot wallets allow quick transactions with cryptocurrency. On the contrary, cold wallets are used for cold storage, when crypto tokens are mainly stored locally. In other words, cold wallets store keys in device hardware that is inaccessible to the cloud. Users are more likely to use hot wallets to make everyday purchases, while cold wallets are used for storage.
There are three different variations of hot wallets and cold wallets in various categories. The software wallets category includes desktop wallets, web wallets, and mobile wallets. Desktop wallets are a form of cold wallet that utilizes applications on desktops that generates files containing private keys to access the wallet. Desktop wallets can the pulled on and off the Internet depending on the situation and user preference. Desktop wallets are capable of keeping a backup server to maintain data. However, this form of crypto wallet would be sensitive to malware infection onto the local desktop. Web wallets or online wallets are hot wallets accessed through web browsers, thus from any device with private keys. Lastly, mobile wallets require the installment of applications on mobile devices and function similarly to desktop wallets.
There are other variations of cold wallets which includes paper wallets and hardware wallets. Paper wallets are paper data to access cryptocurrency. Paper wallets print out QR Codes with the public and private keys. Paper wallets are mainly used to transfer funds to hot wallets. Hardware wallets use private keys on a device in a local setting that does not require online accessibility. All data is stored locally and would hold no possibility of having data shared on the internet or the cloud.
Solana Wallet Crisis
On August 2nd, 2022, Solana blockchain was met with a crisis as a phantom hacker attacked more than 8,000 hot wallets connected to the Internet, with a loss of at least %5.2 million digital coins stolen. The target was mainly Solana-based wallets, stealing SOL tokens and USD coins. It is predicted that the source of this problem was not due to the blockchain system itself but the software used by Solana-based wallets. This is possible if the attacker steals private keys that are the sole identification necessary to access crypto wallets, through a breach in software compromising the private keys of users. The general problem with Solana is its ability to connect with the cloud. Since private keys are stored in the cloud, it is openly accessible to anyone from any device that has access to the Internet.
This problem would cause doubt in associating with using the Solana blockchain ecosystem and partnering companies that work to create crypto wallets that support Solana cryptocurrency output. User confidence in hot wallet crypto secure financial transfers would diminish if not already. The Solana company initially prided itself on its ability to act efficiently with immediate transactions while ensuring the safety of cryptocurrency in the safety of crypto wallets. After this incident, more individuals would become reluctant to trust the system itself. Individuals that already have a high stock of cryptocurrency would become willing to rely more on cold wallets that are only accessible to devices locally or avoid possession of SOL tokens, or any other affected tokens, in general.
The Solana blockchain and company may be the primary victim of this incident, however, it would spread more awareness for other blockchains as well. It will cause more doubt on the reliability of blockchains, both newer blockchains and prominent blockchains, in general coming forward, and whether it may be worth it to place effort into advancing blockchains. There may be more uncertainty as to whether blockchains may become a benefit for the future. Coming forward, though may take a lot of time and work, there would be more development to strengthen the identification to access cryptocurrency wallets, not just through the use of private keys. There may be more procedures such as using more personal identification of users, potentially using fingerprint or facial analysis, or several layers of private keys necessary to avoid the possibility of compromising user data in the future.
Sources
https://cointelegraph.com/news/what-is-solana-and-how-does-it-work
https://www.coinbase.com/learn/crypto-basics/what-is-a-crypto-wallet
https://101blockchains.com/types-of-crypto-wallets/
https://techcrunch.com/2022/08/03/solana-wallet-hack/
https://www.cnbc.com/2022/08/03/hackers-attack-solana-crypto-stealing-millions.html
