## Chapter 1 — Web3, blockchain and cryptoasset security: foundations and decisions ### Learning outcomes You will (1) explain what blockchains, tokens, keys and smart contracts are; (2) recognise where risk sits; (3) make an informed first decision. ### 1.1 The case and the basics Elena Varga manages operations at the fictional Copperleaf Coffee Roasters, a business with four cafés and about 3,000 regular customers. A vendor has proposed running the café loyalty scheme as points tokens on a small permissioned Ethereum-compatible ledger. Elena joins a one-month intensive course at the fictional Quickstart Security Academy, coached by Mr Samuel Otieno, to decide sensibly. Every person, business and number here is synthetic. She learns that a blockchain is a shared, append-only record of transactions in linked blocks, as Nakamoto's 2008 paper described, kept consistent by several computers called nodes. ### 1.2 Tokens, keys and contracts A token is an entry on the ledger recording who holds how many units of something, here loyalty points. Holdings are controlled by private keys: whoever holds the key for an address can move its tokens, and the ledger cannot tell whether that person is the rightful owner. A smart contract is a program stored on the ledger that sets the rules, such as who may create points and how they are spent, as Buterin's whitepaper describes. Elena notes that the most powerful thing in the system is whoever controls the contract's privileged functions, such as creating points or changing the rules. ### 1.3 Where risk sits and the first decision Elena learns that many losses in this field come from poorly protected keys and weak operations rather than from the ledger itself, and that the OWASP Smart Contract Top 10 lists access control failures among the most common contract weaknesses. She also asks whether a blockchain is needed at all; NIST IR 8202 encourages organisations to consider simpler alternatives. Her first decision is not to say yes or no yet, but to require answers to three questions from the vendor: who controls privileged functions, where customer data will be stored, and how problems would be detected and fixed. ### Worked example Elena defers the yes-or-no decision and asks the vendor who controls privileged functions, where customer data lives and how problems are detected. > **Synthetic case.** Elena Varga, Mr Samuel Otieno, Quickstart Security Academy, Copperleaf Coffee Roasters and the vendor are synthetic; Nakamoto, Buterin, OWASP SC Top 10 and NIST IR 8202 are real sources. ### Errors and limits Assuming a blockchain makes a system secure ignores that keys and operations carry most risk. ### Exercises - **EX001 — Business size.** How many regular customers does Copperleaf have? *Rubric:* 3 = about 3,000;; 2 = 3,000;; 1 = 300;; 0 = none. - **EX002 — Blockchain definition.** In one phrase, what is a blockchain? *Rubric:* 3 = a shared append-only record in linked blocks;; 2 = shared ledger;; 1 = a database anyone edits;; 0 = none. - **EX003 — Token meaning.** What does a token record here? *Rubric:* 3 = who holds how many loyalty points;; 2 = point holdings;; 1 = customer names;; 0 = none. - **EX004 — Key control.** Who can move tokens at an address? *Rubric:* 3 = whoever holds its private key;; 2 = key holder;; 1 = the café manager;; 0 = none. - **EX005 — Ledger blind spot.** What can the ledger not tell about a key holder? *Rubric:* 3 = whether they are the rightful owner;; 2 = rightful owner;; 1 = their balance;; 0 = none. - **EX006 — Contract role.** What does the smart contract do here? *Rubric:* 3 = sets rules for creating and spending points;; 2 = sets rules;; 1 = prints receipts;; 0 = none. - **EX007 — Most powerful party.** Who is most powerful in the system? *Rubric:* 3 = whoever controls privileged functions;; 2 = privileged controller;; 1 = customers;; 0 = none. - **EX008 — Common loss source.** Where do many losses come from? *Rubric:* 3 = poorly protected keys and weak operations;; 2 = keys and operations;; 1 = the ledger itself;; 0 = none. - **EX009 — OWASP point.** Which weakness does the OWASP list highlight here? *Rubric:* 3 = access control failures;; 2 = access control;; 1 = spelling;; 0 = none. - **EX010 — Alternatives question.** What does NIST IR 8202 encourage organisations to consider? *Rubric:* 3 = whether simpler alternatives would do;; 2 = alternatives;; 1 = more blockchains;; 0 = none. - **EX011 — Decision deferred.** What is Elena's first decision? *Rubric:* 3 = not yet yes or no, but to require answers;; 2 = defer;; 1 = sign immediately;; 0 = none. - **EX012 — Vendor question.** Name one question for the vendor. *Rubric:* 3 = where customer data will be stored;; 2 = who controls privileged functions;; 1 = what colour the app is;; 0 = none. - **EX013 — Course length.** How long is Elena's course? *Rubric:* 3 = one month;; 2 = a month;; 1 = one year;; 0 = none. ### Synthesis Understanding tokens, keys and contracts lets a manager ask the questions that matter before deciding. ### Continue studying — lesson 01 (chapter 01 of 20) [← Course home](../../README.md) · [Course chapter index](../SUBJECTS.md) · [Chapter 02 →](#ch-02) Continue to the next authored lesson. ## Worked answers **EX001.** About 3,000 regular customers across four cafés. **EX002.** A shared, append-only record of transactions kept in linked blocks by several nodes. **EX003.** Who holds how many units of loyalty points. **EX004.** Whoever holds the private key for that address. **EX005.** Whether the person holding the key is the rightful owner. **EX006.** It sets the rules, such as who may create points and how they are spent. **EX007.** Whoever controls the contract's privileged functions. **EX008.** Poorly protected keys and weak operations rather than the ledger itself. **EX009.** Access control failures. **EX010.** Whether a simpler alternative to a blockchain would be enough. **EX011.** To defer yes or no until the vendor answers three questions. **EX012.** Who controls privileged functions, where customer data lives, or how problems are detected and fixed. **EX013.** One month, intensive.