Cryptocurrency Security: Can Bitcoin Be Hacked?
Cryptocurrencies are growing in popularity but so are the safety concerns surrounding them.
The rise of the technological revolution also brought about an increase in hackers, and since crypto is based on digital technology, it’s no surprise that it’s a major target.
Bitcoin, in particular, has been receiving a lot of attention, especially after the price of 1BTC reached an all-time high price of $20,000 in 2018. This was even more than the price of a troy ounce of gold!
The number of publicized cryptocurrency hacks has also increased, which has left many investors wondering ‘how safe is bitcoin‘?
Here’s a comprehensive guide into bitcoin security.
An Overview of Bitcoin Security
Has Bitcoin Been Hacked?
Even with the rise of digital currency theft, bitcoin itself has never been hacked. All reported cases are usually about investors whose wallets have been hacked or exchanges that have been breached.
The integrity of the bitcoin blockchain, however, remains uncompromised.
Is Bitcoin Hack-Proof?
Currently, it’s near impossible to hack into the bitcoin network. The systems on which bitcoin runs are considered hackproof due to 2 main reasons;
1. Hashing & Mining
New bitcoin is released into circulation through mining. This is where people solve complex mathematical equations to verify transactions and are then rewarded through never-before-used bitcoin.
These equations are created through hashing, and solving them results in new blocks being added to the bitcoin blockchain.
Hashing is an encryption feature that makes bitcoin transactions secure. When a hash is generated using algorithms or formulas, it ensures that the bitcoin transaction remains untampered with.
All hashes are unique, and every transaction is given a distinctive code before being listed on the bitcoin ledger. This makes it easy for miners to verify bitcoin transactions.
2. Blockchain & Nodes
Bitcoin is based on a decentralized system that ensures that even if one section of the system fails, the rest of the system remains unaffected. All data is stored across a wide
network of computers instead of a central server, making it difficult for hackers to penetrate the system.
For instance, assuming the servers were vaults, if a hacker were to gain unauthorized access, they would have to break into all the vaults at the same time, which is virtually impossible.
This high-quality blockchain technology makes bitcoin extremely safe.
Nodes, on the other hand, ensure transactional security on the blockchain by ensuring every bitcoin transaction is unique.
Transactions with the same code as an already existing record on the bitcoin ledger are not approved, which is why it’s difficult to scam people with fake bitcoin.
The only way anyone could hack bitcoin was if they gained access to at least 51% of the bitcoin servers at the same time. They would then have to gain control of most of the bitcoin blockchain’s mining power so that they can alter the transaction history.
This is, however, very hard because bitcoin servers are scattered across the globe. It’s also why bitcoin has never been hacked.
How Do Scammers Steal Bitcoin?
Even though bitcoin is technically unhackable, it can be stolen. Hackers are constantly looking for new ways to scam bitcoin investors, and here are the top methods they use.
1. Through Third-party Applications
The cryptocurrency sphere is very volatile, and digital coins experience price fluctuations often. This makes it difficult for traders to keep up with current prices, which is why they use third-party applications.
There’s just one problem, the sensitive data you provide to these sites can be acquired by hackers, making you a potential target.
2. From Exchange Platforms
Due to the large number of funds being transacted on exchange sites, they are a hotbed for malicious hackers. Most Australian exchange platforms like Swyftx have bank-like security protocols, but there are some that are a bit lax. If traders gain access to the system, they can withdraw from customers’ wallets.
A great example would be CoinCheck, an exchange site from Tokyo that lost around 5000 million in crypto after hackers breached their systems in 2018.
3. Dummy Sites
Before you sign up for an exchange platform, ensure that you’re on the official site. Most legitimate sites usually have an SSL certificate, and if the registration page is insecure, then that should be a major red flag. Hackers often create such pages using malicious code to get your private information.
4. From Peer-to-Peer Exchange Sites
These sites connect bitcoin buyers and sellers but are usually highly unregulated. This is why they have high rates of scams and fraud cases. If you must meet the bitcoin buyer in person, ensure it’s in a public place where they can’t force you to give them your private encryption key.
This is a hacking tactic where crypto traders pose as legitimate trading sites and send you emails embedded with malicious code. Once you open the email and follow the link to the phishing site, the hackers get your login credentials and can gain unauthorized access to your account without your knowledge.
Where to Store Your Bitcoin to Keep It Safe
All digital coins should be stored on wallets to keep them safe. Since cryptocurrencies are digital in nature, they can only be stored in the form of transaction records on the bitcoin ledger. This means that the wallet, in this case, doesn’t hold actual coins but an encryption key that you can use to transfer, receive and monitor your bitcoin.
There are 3 main types of cryptocurrency wallets;
1. Online wallets: they are also known as hot wallets and are usually connected to the internet. Small-volume and high-frequency traders prefer these types of wallets due to their convenience. They are, however, at high risk of hacker attacks and require strong password protection.
2. Hardware wallets: these are actual devices like a USB drive that are used to store your encryption key. They are offline, which makes them very secure. The only way you can lose your bitcoin is if you lose the wallet itself. Some of the best offline wallets include; Ledger Nano S and Trezor.
3. Cold wallets: these are like a hybrid between online and hardware wallets. They have access to online networks, but they can also be stored offline. They are mainly used by exchange sites as they are highly secure.
4. Desktop wallets: these types of wallets are like hardware wallets, but the encryption key is downloaded directly into your desktop.
Tips to Keep Your Bitcoin Wallet Secure
What Was the Largest Bitcoin Theft?
The Mt.Gox bitcoin hack is undoubtedly the one incident that almost brought bitcoin to its knees. This exchange platform was responsible for around 70% of all bitcoin transactions between 2013 and 2014.
It was hacked in 2014 and lost more than 600,000, which caused it to declare bankruptcy.
Investigations revealed that the breach was caused by a Russian hacker who transferred the bitcoins to himself. This hack caused the prices of bitcoin to plummet, and many investors made massive losses.
A while back, hackers also gained access to the Twitter accounts of prominent and influential people, including Bill Gates and Jeff Bezos.
They then messaged their followers and required that they send bitcoins to a specific wallet in exchange for bigger rewards.
Protect Your Cryptocurrency Investment Today!
The safety of your bitcoin investment is highly dependent on how well you store the coins.
The bitcoin network is virtually unhackable, and the only way you can lose your coins is if hackers gain unauthorized access to your account.
Use the above tips to keep your bitcoin safe and protect your investment.
Warren is the co-founder of CoinCryption. He has a passion for cryptocurrency and has been involved in this space for more than 7 years. His other love is digital marketing and has over 15 years of experience.