What Are Bug Bounties and Why Are They Important for Web3

The more Web3 and blockchain develop and grow, the more security becomes an important aspect of development and of running a Web3 business. Crypto protocols are quite lucrative for hackers, so the need to identify and address vulnerabilities in these systems becomes more critical than ever.

What’s more, blockchain security is not a “set & forget” type of activity; it requires constant rigor and ongoing attention and effort.

This is where bug bounties come into play. In this article, we will delve into the concept of bug bounties, their significance in the realm of Web3, and why they are a fundamental component of blockchain security.

Understanding bug bounties

Bug bounties, often referred to as vulnerability reward programs (VRPs), are initiatives where organizations, projects, or platforms invite security researchers and ethical (white hat) hackers to identify and report security flaws and vulnerabilities.

In return for their efforts, these researchers are rewarded with monetary incentives, recognition, or other incentives. The primary objective of bug bounties is to uncover and resolve potential security weaknesses before malicious actors can exploit them.

Bug bounties come in all shapes and sizes, however they tend to share a set of key components:

1. Scope: Bug bounty programs clearly define the scope of what is eligible for testing. This includes specifying the target smart contract, types of vulnerabilities that are of interest, etc.

2. Severity classification system: Most bug bounty have a clear scale for classifying vulnerabilities — for example the CVSS.

3. Rewards: To motivate security researchers, bug bounty programs offer rewards based on the severity of the reported vulnerability. High-risk vulnerabilities receive more substantial rewards. This is also a way to filter out beginners who are reporting trivial things that may seem like security threats but are in fact not.

4. Disclosure Policy: Bug bounty programs outline how vulnerabilities should be reported and disclosed. This often includes responsible disclosure guidelines, which ensure that vulnerabilities are reported privately to the organization before being publicly disclosed.

Why bug bounties matter to blockchain security

If you’re wondering why bug bounties are important and so popular in the industry, consider the short answer: they improve security in a cost-efficient way.

There are many layers to how they do that, though. Let’s explore this.

1. Identifying vulnerabilities early
Bug bounties play an important role in identifying vulnerabilities early. Blockchain systems deal with digital assets and smart contracts that manage financial transactions and agreements. Any vulnerabilities in these systems can result in significant financial losses. By inviting security researchers to proactively hunt for vulnerabilities, blockchain projects can address issues before they are exploited by malicious actors.

2. Complementing smart contract audits
While smart contract audits are a common practice, bug bounties can complement these audits by providing an ongoing and dynamic assessment of potential vulnerabilities. Audits are typically performed before deployment, whereas bug bounties can continue throughout the software’s lifecycle.

3. Harnessing the power of the community
Web3 thrives on decentralization and community involvement. Bug bounty programs tap into the collective expertise of security researchers and ethical hackers from around the world. This diverse pool of talent can bring fresh perspectives and insights into the security of blockchain projects, helping to uncover vulnerabilities that may have been missed by internal teams.

4. Cost-effective security
Engaging with the security community through bug bounty programs can save projects a lot of money. Instead of maintaining a large internal security team, organizations can leverage the expertise of external researchers who are incentivized to find and report vulnerabilities. This approach allows organizations to allocate resources more efficiently and focus on other critical aspects of their projects.

Why you should have a bug bounty

As we already saw, VRPs bring multiple benefits to the table. This is why a lot of projects have them — exchanges like Kraken, Bittrex and KuCoin; Layer 2’s chains like Avalanche or even Layer 1’s like Sui; crypto wallets like MyEtherWallet; DeFi protocols like MakerDAO and Uniswap; etc. all have bug bounties in place.

The Ethereum Foundation has a bug bounty as well, and this should tell you enough. But just in case you are not 100% convinced, here are three more reasons to set up a VRP.

1. Increased security
Smart contracts come with a high degree of complexity. No matter how extraordinary the smart contract developers are, they are after all human, and humans miss things. Things that other humans can catch. This is why more and more blockchain protocols and companies opt in to have a robust bug bounty system — the more eyes they have on their code, the more secure that code is.

2. Increased trust
Bug bounties help build trust by demonstrating a commitment to security and transparency. By offering a bug bounty, you show that you are willing to work with the security community to identify and fix vulnerabilities, which can help build trust with users and investors.

3. Encouraging Innovation
Bug bounties can also encourage innovation in the blockchain industry by providing a platform for security researchers to test and improve blockchain-based systems. The rewards for finding vulnerabilities incentivize researchers to explore new ways of testing and improving blockchain-based systems.

How to set up a great bug bounty program

Whether you decide to outline your VRP in a blog post on your company blog, or use one of the specialized bug bounty platforms, here are a few best practices to make it a successful one.

1. Set clear expectations
Clearly specify the scope of the bug bounty program, including the platforms, protocols, and types of vulnerabilities you are interested in.

2. Offer adequate rewards
Offer competitive rewards to incentivize skilled security researchers to participate. High-risk vulnerabilities can cost you tons of money, and sometimes even your entire business so make sure to compensate bug hunters accordingly. You don’t need to go as high as MakerDAO’s $10 million bounty but make sure to offer rewards that would make whitehats’ time worth.

3. Make it easy to report vulnerabilities
Provide a clear and easy-to-use process for researchers to report vulnerabilities and don’t make them jump through hoops.

4. Be responsive
Respond to vulnerability reports promptly and professionally. This could be time consuming but it helps you show how open to collaboration your project is. Respect responsible disclosure timelines.

5. Be transparent and provide regular updates
Be transparent about the vulnerabilities that are reported and the steps that are being taken to fix them. Keep the program updated with changes to your project — new features or updates may introduce new vulnerabilities that need to be assessed.

6. Engage the Community
Actively engage with the Web3 and blockchain community to attract a diverse pool of talent. Fostering a collaborative environment where researchers feel welcome to contribute has absolutely no downside for you.

7. Implement continuous evaluation
Continually assess the effectiveness of your bug bounty program and make improvements as needed. Learn from each reported vulnerability and use it to enhance your project’s security posture.

Conclusion

In the dynamic and ever-evolving world of Web3, bug bounties can be a crucial line of defense, allowing organizations and projects to identify and address vulnerabilities before they are exploited by malicious actors.

The unique challenges of blockchain development make bug bounties an indispensable tool in the arsenal of blockchain security.

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