Bitcoin is an alternative peer to peer electronic payment system that allows two parties to transact directly with each other. Bitcoin features include:
• Reliance on ledgers and cryptographic proof (rather than trust)
• Peer to peer payments over an online network
• Replaces third parties and relies on verification
• Protects sellers from fraud with irreversible transactions
• Generates mathematical proof of the chronological order of transactions via a peer-to-peer timestamp server
With the popularity (and price) of Bitcoin skyrocketing, new users are wondering “Is Bitcoin Safe?” while early adopters are focusing on securing their new digital wealth. When it comes to the safety of Bitcoin, it is important to consider the security of the Bitcoin network. Frequent reports of hackers stealing millions of dollars in Bitcoin lead many to believe it must be fairly insecure and easily hacked. However, this whereunderstanding the differences between Bitcoin and the Bitcoin blockchain (the technology that enables the cryptocurrency) becomes important. Without understanding Bitcoin blockchain and considering the insecurities of crypto exchanges, it is difficult to determine whether or not the Bitcoin network is secure.
So, what is Bitcoin blockchain?Digital currency is not a new concept. Before its wide adoption, one of the inherent roadblocks to a successful digital currency was the “double spending problem.” Because the currency is digital, how do you prevent people from simply copy/pasting their money and spending the same $20 over and over? Bitcoin solved this problem with the novel concept of distributed block-chaining for decentralized ledgering and verification of transactions around digital currencies. In short, a kind of online distributed ledger. Only a certain amount of Bitcoin exists, just as there is a finite amount of gold. Each electronic “coin” is a chronological series of verified digital signatures and all transactions must be revealed publicly. By doing so, everyone knows how much Bitcoin each person has. Bitcoin participants can then reach a consensus on which transactions are valid based on the balance of each account. This acts as a “safeguard”, because in order to hack into the Bitcoin network, a person would need to control over 50% of the voting power in the network to be able to validate their own fraudulent transaction. This is due to the fact that in the Bitcoin network, the amount of computing power an individual contributes to the network equals their voting power. To put it simply, an individual would need to amass at least 250x the computing power of Google to hack the Bitcoin network! So then how are people losing their Bitcoin to hackers? Todate, no one has been able to compromise the core Bitcoin network. Every major Bitcoin or cryptocurrency hack exploited vulnerabilities in third-party applications, crypto exchanges, or insecure crypto web sites. Third-party applications, crypto exchanges, and web sites make it easier for people to interact with the Bitcoin network. Online wallets, or e-wallets, allow people to buy, sell, and store Bitcoin. If a person’s e-wallet provider is compromised, their account’s password and private key would be at risk, and hackers would be able to transfer money out of their account. This isn’t a vulnerability in the Bitcoin network, but in the third-party application. There are also individual accounts getting hacked from tried and true phishing, social engineering, and malware attacks that don’t ever make the news.
So how can a person keep Bitcoin safe from hackers? Given that the network is cryptographically and mathematically proven to be secure, focus should be placed on securing the accounts used to buy, sell, trade, and store Bitcoin. Follow security awareness best practices so that username, password, and private key do not get stolen. People new to security awareness can access a lot of free resources, as well as engage in cybersecurity courses (for purchase). Although e-wallets are more convenient, they are much more susceptible to basic phishing, social engineering, or malware attacks that trick users into revealing passwords and private keys. The use of hardware wallets can act as a good prevention measure. Hardware wallets are essentially USB drives with extra built-in security. They require a person to push buttons on the physical device to confirm a transaction, so a hacker would have to be in physical possession of the hardware wallet to steal Bitcoin.
It is unquestionably an eventful time in the world of cryptocurrency and blockchain. People who want to participate in the space, have to ensure they are willing to accept the associated risk and take the proper steps to minimize that risk and secure their digital assets and identity.
Interested in learning more about Bitcoin and its technology? Check out the original whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, by Satoshi Nakamoto, the pseudonymous creator of Bitcoin.