Talking about bitcoin’s security it’s important to differentiate two things — how the bitcoin network works, and how bitcoin is transferred and stored. Bitcoin’s underlying technologies have already established themselves as secure, efficient, and functional. Then why do we hear about various hacks and that bitcoin can be stolen? The thing is that storing bitcoin is the responsibility of the bitcoin owner. It is the bitcoin owner who decides what methods to choose to protect the funds, and if he neglects the funds’ protection, they can be stolen.
Bitcoin itself is almost impossible to hack, even quantum computing will not break it. But you still need to know the underlying technologies and principles to avoid making a mistake and make sure that your bitcoins are secured.
Bitcoin technologies that were implemented to make cryptocurrency secured
Blockchain is one of the main technologies that makes bitcoin transactions safe and secure. Bitcoin’s blockchain is a distributed ledger that is mostly used for storing transaction history. All information about transactions is stored in blocks with complex encryption. Each new block is firmly connected with the previous one. In order to add a new block to the blockchain, miners should solve a math problem that requires a lot of computing power. Blocks are validated by a decentralized nodes network, so the blockchain does not have a single point of failure.
Blockchain almost excludes the possibility that a hacker can somehow influence a certain transaction since he will have to attack the entire network for this. Therefore, if your transaction was added to a block and after that several blocks were found, then you can be sure that this transaction will remain unchanged.
Another important principle used in bitcoin transactions is the separation of public and private keys. All keys are just a collection of letters and numbers, so they cannot be associated with a specific user.
The public key is the address that is used to conduct transactions. Everyone can see it on the blockchain, and everyone can find out the transaction history of a particular address. But the only thing they will find is another public address.
The private key is used to confirm transactions, so whoever owns the private key is essentially the bitcoin owner at a specific public address. The private key should be kept secret and only the bitcoin owner should have access to it. If you give the private key to someone else, they can steal your funds by transferring them to another address.
Remember that you can create an unlimited number of public addresses. That is why it is recommended to use one public address for one transaction to stay anonymous.
Decentralization, encryption, confidentiality, and other principles of the bitcoin network reduce the technical possibility of stealing funds to a minimum. But in addition to the technical tools against external attacks, the bitcoin network also has a kind of “economic protection” against internal attacks. Miners are rewarded for finding a new block and this forces them to act within the rules and not attack the network.
In theory, an attacker can seize power over the bitcoin blockchain or attack the network validators for his own benefit. However, the bitcoin network is so demanding on attackers that Sybil attacks and 51% attacks have become too difficult, expensive, and practically pointless.
Additional security levels used in the crypto industry
Although the bitcoin network is highly secured by itself, bitcoin can still be stolen from the wallet. A wallet is a place to store bitcoin, so if you hear that bitcoin was stolen somewhere, then in most cases it means that someone has gained access to the wallet.
Almost anything where it is possible to store public and private keys can be used as a wallet. Wallets can be roughly divided into two types — hot and cold. A hot wallet means that bitcoin is stored online, for example, in the cloud or some online service. Cold storage is a wallet that is not permanently connected to the Internet, such as a hard drive, mobile device, or even a piece of paper. Cold storages are considered more secure than hot wallets, as they cannot be accessed remotely. Crypto exchanges such as CEX.IO mostly use a combination of hot and cold wallets for different purposes.
Only the bitcoin owner decides where to store his funds. So, the funds’ protection is also assigned only to him. Remember that a regular password may not be enough, especially if the hacker somehow finds out who owns the wallet. It is the reason why two-factor authentication has become so popular in the crypto industry.
You can protect your bitcoin wallets not only by standard methods but also by crypto-native ones. For example, seed phrases and multisig. The seed phrase is mainly used to access storage if the user forgot the wallet password. Multisig is most often used if there are several bitcoin owners and they don’t want someone who has access to transfer funds without the approval of the other owners.
Bitcoin wallets can be a real headache for a hacker if you take care of private keys and add multiple layers of protection. The crypto industry provides a lot of room to find your balance between convenience and security. Remember that bitcoin itself is secure and difficult to steal, but only you can ensure the safety of your funds.
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