Are cryptocurrencies secure? Can cryptocurrencies be hacked? Blockchain and cryptocurrency are sweeping the globe but they aren’t as safe as you might think.
Can cryptocurrency be hacked?
Are cryptocurrencies safe? Can cryptocurrencies be hacked? These and other questions are on the minds of traders, investors, supporters, opponents and regulators the world over. Bottom line is that yes, a cryptocurrency can be hacked. Let’s face it, it’s just another technological puzzle that is attracting the attention of technogeeks and criminals alike; sooner or later someone will figure out how to do it. Of course, it’s already been done. Blockchains and cryptocurrencies are attacked every day if for no other reason than it’s possible. The real reason though is because blockchains represent value and money and where there is money there is motivation.
The strength of a blockchain lies not in its ability to repel attack because it can’t. The strength of a blockchain lies in the redundant nature of the DLT, the distributed ledger technology. It’s pretty easy for a black hat to hack into a mining node and falsify a transaction. It’s hard for a black hat to hack into every mining simultaneously and impossible to do that and alter the enter blockchain up to that point and believe me, that is what you’d have to do to fake a Bitcoin.
Blockchains are distributed ledgers. A ledger is a record of transactions, a distributed ledger is one that is shared with a community or the public in order for audit and verification. The analogy that best sums up how a blockchain works is the box of checks. Each check represents a transaction akin to a Bitcoin or other altcoin exchange. As the number of transactions and checks grows you will eventually fill a book and then a box. The box is like a block in the blockchain. The block is a set number of transactions that have been bundled up and added to the chain.
Before the block can be added to the chain however it gets distributed to all the mining nodes on the network. This is so that they can each verify that the transactions contained within the block are all valid. This audit means that each unit of cryptocurrency can be traced back through the chain from transaction to transaction to the very point it was mined. It exists in every block from the point of its mining forward and has been verified by the network. Each node on the network is an independent operator and third party auditor, if even one of them rejects a block – it is invalidated.
That being said there is plenty of risk for cryptocurrency traders and investors. Remember, we’re talking about real money regardless the form and that means there will be criminal elements lurking in virtually every digital shadow they can find. While the blockchain and the altcoin themselves are relatively safe from hacking, you still have to connect to the Internet to buy and sell them. The connection itself can and will be targeted. Hackers can watch for traffic searching for those websites or traveling to and from them.
After that you will have to link your bank or credit card information to an exchange in order to make your transactions and that will put your data at risk. Sure, most if not all of the exchanges are using a two-factor authentication process but even that is not un-hackable. By now you’ve got your account all set up and it’s time to buy some altcoins but where do you hold it? Online exchanges are vulnerable to hacking as evidenced by Bithumb’s break-in early in 2017. The exchange reported that 30,000 customers’ information had been compromised and more than $1,000,000 in cryptocurrency had been stolen.
Losses included actual theft from accounts whose passwords had been stolen along with phishing and other frauds. The bad news for owners of the altcoins is that the transactions can be tracked on the blockchain but are impossible to recover. Altcoins are sent and received in wallets using anonymous addresses. Once received they could be transferred to any other wallet on the net and/or exchanged for fiat currency and withdrawn. Mt. Gox, then the largest Bitcoin exchange in existence, had more than $450 million of the coin disappear without a trace and there are more of such stories.
A solution to this is to hold your coins offline in a computer-based wallet. This means downloading more software to your device, storing a cumbersome list of security questions/responses and risking a personal attack. To further secure your coins there is the final step, cold storage, holding your coins in an encrypted file on a memory stick. Safe from attack but at risk from degradation, a stray magnet, loss or damage.
And the risks don’t stop there. If you aren’t careful with your choices you could easily fall prey to a number of scams and frauds based on cryptocurrencies. One that has gotten a lot of attention lately is the ICO, or initial coin offering. This is a way for a new blockchain or blockchain based technology to get funding at the start-up level. In many cases the start-up is legit, you receive whatever coin it is they are offering and off you go. In some cases the businesses are not only fake but outright frauds only intended to get hopeful investors to send altcoins to their anonymous address. Other scams include fake trading exchanges advertising quick and easy profits. These range from those offering to buy/sell altcoins to those providing spot style forex trading and even binary options.
Will Quantum Computers Kill Bitcoin?
Encryption is generally believed to be the end to all computer and Internet safety. Sending and storing data in a jumbled state requiring years of computational power to break seems pretty good. Unfortunately what most Internet users don’t know is that quantum computing is on the way and much closer than you might think. To put it simply, a quantum computer relies on the interactions of particles at the sub-atomic level to perform manipulations on data. They differ from traditional digital binary computers in one significant way; where binary computers use bits that can either be on or off, 1 or 0, the quantum bits can exist in a number of states vastly increasing the number of possible permutations.
- In quantum mechanics, the science of the very smallest particles known to exist, bits have discreet values and may exist as either a particle or a wave. Superposition is a fundamental principle and states that any two or more quantum states can be added together to form a new state. Conversely, any quantum state can be described by adding two or more states together. Entanglement is another quantum principle in which the state of a group of particles cannot be described independently of each other, even when separated by great distances.
As of today quantum computing is still in its earliest phases but live testing of prototype machines is underway. The machines operate on what has been termed a Qubit or a quantum bit. Small machines of only 16 qubits are available for hobbyists (read that as “highly skilled technogeeks”) but larger models are still a long way off. To put this into perspective it is estimated that 50 qubits will be powerful enough to obtain quantum supremacy or the point at which the most powerful digital computers will no longer be able to compete.
While the benefits of super powerful computers are easy to see so are the risks. A quantum computer would be able to solve in minutes what it may take a standard computer weeks or months to achieve. This means that modern encryption will no longer work, not only will our use of the Internet be at risk but so too will all the data that has ever been compiled and stored. Hackers could use a quantum computer to break in and steal data from the NSA, the CIA or any other organization they wanted too. A patient black hat hacker who has already obtained sensitive but encrypted information could wait until the technology advanced far enough to break the code.
The good news is that new data will likely be safe as those same quantum computers could be used to devise a sort of quantum encryption that could not be broken until the next major advancement. The same technology could also be used to go back and re-encrypt previously stored data in a safer manner.
The threat to Bitcoin is that the code which makes the blockchain function is encrypted. Developers fear that governments could break the encryption and shut the coin down, or take it over or some other wildly speculative fear. The reality is that building and operating a quantum computer strong enough to do that is far from a reality. They require ultracold for the processors to work and the number one reason why they are not available on a commercial basis. To date the only large scale quantum computers that have been built have been designed for specific purposes with little in the way of practical application.
Add to that a natural resistance to cracking built into Bitcoin’s underlying code and the chances of it being cracked by quantum computer fall further. You see, Bitcoin addresses use a hash of your full address key meaning it is a one-way encryption. You can give out your address, people can use it to send you Bitcoins but they can’t use it to derive your actual address.
Will quantum computers break bitcoin? Most likely not. If anything, the Bitcoin community will adapt along with computers so that it incorporates the quantum. Before that happens though it is the miners who are really at risk. Sure, a quantum computer could be used to focus on breaking into accounts but a better use may be to turn it loose as a miner. The miners are in fact using their computers to solve complex computational riddles, the one who solves it first is allowed to box up a block, submit it to the chain and recoup the reward which in this case would be newly mined Bitcoins. If a quantum computer can solve those problems in a fraction of the time of other nodes on the network than it will surely be able to win all the blocks and mine all the coins.
Without a doubt. The blockchain offers so much that it can’t be ignored. The applications go so far beyond mere exchange that central banks, governments, businesses, organizations and schools around the world are incorporating the technology into their operations. If anything is able to break or kill Bitcoin it will be another, more powerful blockchain. In terms of what Bitcoin can do, it is akin to an old style rotary phone; it connects two accounts together for the purpose of transactions.
Blockchains like the Ethereum network are far more advanced and likely still not the final form of cryptocurrency we will see. Where Bitcoin is a rotary phone, Ethereum is smartphone capable of carrying smart contracts years or decades after they are first created. It also serves as a platform for new blockchain technologies, new cryptocurrencies and is the power behind many of the ICO’s hitting the market. Smart contracts are protocols that execute the terms of contractual obligation without the use of intermediaries which means it can be used at the deepest layer of any application and not just for financial transactions.
The Ethereum Enterprise Alliance is an organization of businesses and institutions spanning the blockchain ecosphere, education, IT, commodities and industry sectors. It connects Fortune 500 companies, start-ups and technology vendors with Ethereum technology specialists. It’s purpose is to explore, learn from, utilize and expand on the Ethereum blockchain network to create enterprise worthy applications capable of handling highly complex business applications… not just cryptocurrency.
The Future Of Cryptocurrency
The future of cryptocurrency is here in the present whether you believe in them or not. We may not have seen the final form that this new form of payment, transaction, smart contract will take but it is assured that the technology will not disappear. As their acceptance grows it becomes more and more likely central banks around the world will begin to accept them as currencies and even to use blockchain for their own currencies. A nation whose money is regulated by the blockchain could reap many benefits including decreased corruption, less financial crime, easier tax collection and better controls on inflation.
The world’s biggest private banks are already embracing the technology. These banks which include UBS, Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC and Deutschebank have joined together to create the Utility Settlement Coin. It is a blockchain backed technology to be used for clearing and settling transactions between institutions. Basically, it is a means of buying and selling to each other without the need to wait for traditional money transfers, IE instantly. Among the many benefits of the new coin will be price stability not seen in most other coins as it will not be accessible to speculators.
According to the story in the financial times, the USC will be convertible at parity (at equal value or 1:1) with the bank deposit in the corresponding currency making it full backed by cash at a central bank. This makes it much more stable than any other crypto token on the market today and likely to quash them all should it become available to the public. A cryptocurrency backed by the world’s leading banks and cash on deposit at a central bank naturally leads to the possibility of ATM and credit cards based on USC, futures markets, cash back / rewards deals and any other conceivable product based on blockchain application.
Use VPN To Boost Cryptocurrency Security
A VPN for online purchases can go a long way toward helping to secure your cryptocurrency and other online purchases. VPN, virtual private network, has been used for decades to secure connections and data by the world’s largest corporations, governments and spy agencies. Now commercially available it comes with many benefits for the cryptocurrency enthusiast. First and foremost, they secure your connections preventing leakage of data, monitoring of your traffic or targeting by outside influences. When you use a VPN the only people who will know you are online are yourself and the websites you connect to. On top of that, the data you send across the VPN network is encrypted to ensure that, on the off chance you are intercepted, no one can use your information.
The best part is that a VPN subscription from Le VPN is only a few dollars per month and covers every device in your home or office when used with a VPN router. If you are interested in cryptocurrency, and by reading this article I can tell that you are, you need to be interested in digital security too. Quantum computers capable of breaking Bitcoin may still be a long way off but cybercrime is here today. Don’t let it ruin your experience, get Le VPN.
*Article Updated On December 7th, 2018.*
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