The promise of quick riches has lured investors around the world to Bitcoin and other cryptocurrencies. Following Bitcoin’s success, a legion of follow-on projects, imitators, and supporters have emerged. There was also an opportunity for thieves because where there is a promise of riches, there is an opportunity to steal it.
Cryptocurrency can be hacked if hackers exploit vulnerabilities, but it is only possible in certain situations. Is there a way to protect your investments and yourself?
Notes To Take Away
- Using cryptography to secure transactions and ownership data, cryptocurrency is a decentralized digital currency.
- Cryptocurrency transactions are recorded on a blockchain, a digital ledger.
- Due to blockchain technology’s concepts, it is virtually impossible to hack into it. The blockchain is not impenetrable, but there are weaknesses outside of it that make it vulnerable to thieves.
- Cryptocurrency wallets and exchange accounts can be hacked by hackers to steal cryptocurrency.
Unlike other digital currencies, Bitcoin is not governed or overseen by a central authority, group, or government.1 The emergence of digital currency was fueled by peer-to-peer transactions, leading to a digital world where anything could be represented with a blockchain token.
In a blockchain network, all transactions are recorded and verified by public ledgers. The transactions, pseudonymous addresses, and amounts transferred are all visible to everyone. Scripts, programming, and automated transaction validation processes ensure that no one is able to access, modify, or add entries to these public ledgers.
What Makes a Blockchain Secure?
Cryptographic techniques and consensus mechanisms are used in blockchains to provide security. Data from previous blocks are included in each new block of a blockchain using encryption. A chain of encrypted data connects the entire ledger. Creating a new block increases its security.
Since blockchain is already established, those who wish to hack into the network can do so without introducing malicious code or changing the network by brute force.
An Attack on a Blockchain: What Can Be Done?
A blockchain could be taken over by an attacker or group of attackers who control its hash rate, or computing power. By taking over the blockchain, they can make changes to transactions that were not confirmed by the blockchain before they took over. Six confirmations are required for a transaction to be considered successful.
Once the attackers gain access to the tokens used in transactions that the network hasn’t confirmed, they may use them. The altered blockchain would function however they programmed it to, and the coins would be transferred to anonymous addresses
Cryptocurrency hacks in places where they happen
In the blockchain, cryptocurrency ownership is tied to a token. Each token has a private key, which is held by its owner or custodian. Although the tokens and numbers themselves could be hacked, the encryption methods would make it difficult to succeed.
Blockchain and cryptocurrency are weak because of encryption and how private keys are stored. Cryptocurrency professionals have a saying: Not your keys, not your coin.
According to this saying, if you do not control the keys to your crypto, you cannot control what happens to it, regardless of the circumstances. When you give someone control over your cryptocurrency by allowing them to store your keys for you, that entity is called a custodial relationship.
Private keys are stored in a wallet, where most hacks and thefts occur. On mobile devices and computers, Bitcoin wallets store private keys in software applications. On paper or on devices such as USB thumb drives, they can also be stored.
Either a hot or cold version of a wallet is connected to the internet (electronic or software). Hot and cold storage methods are offered by crypto exchanges for their users; custodial storage methods secure your keys.
Hacks on exchanges
Regardless of what a custodial key holder tells you or what level of security they advertise, they are a weak point. The majority of cryptocurrency exchanges hold their customers’ private keys in reserve for liquidity purposes. Hackers are attracted to them because of this.
In order to gain access to cryptocurrency keys, thieves target exchanges. A cryptocurrency exchange hack is unlikely to compromise your cryptocurrency if you do not store your private keys there.
Cryptocurrency Security Tips
To prevent cryptocurrency theft, you can take several simple steps. Understand where your keys are stored, how they can be accessed, and what you can do to prevent them from being accessed.
Wallets can be hot, cold, custodial, or non-custodial. An internet-connected wallet or a wallet that is connected to another device is the least secure. It is never a good idea to store your keys on a device that has a constant connection. Your keys can be accessed through an application if it has a connection.
It is unnecessary to buy a commercially manufactured device in order to use a Bitcoin wallet. Alternatively, you can use a USB thumb drive encrypted with encryption. A cold storage device becomes hot once it is connected to a computer or another connected device; however, USB connections can degrade over time.
In terms of key storage, there is no non-degradable, long-lasting method that is 100% secure. The problem is that many people lose money from their bank accounts because hackers and scammers use their personal information to access them. Protecting your personal information is no different than protecting your private keys.