Every now and then news items with headings like the one above gain mainstream media attention often sparking arguments to probe the claim that bitcoin is unhackable. If you have crypto-skeptical friends you are sure to receive links to these news items every time they go viral.
So today we will be examining the hackability of bitcoin and in extension other cryptocurrencies. I believe questions like “can my bitcoin be stolen, hacked, displaced or lost” are legitimate questions people ask and should ask when introduced to cryptocurrencies for the first time.
So to the question: Can my bitcoins be hacked or stolen?
The answer is: Yes and No. Paradox? Not exactly.
No, because the transparent, distributed and consensus seeking nature of the technology that underlies bitcoin, blockchain, makes it literally unhackable. Every coin ever created or mined in the blockchain is till today still resident in the bitcoin blockchain irrespective of the several “bitcoin stolen or hacked” news you have read what likely happened is those coins changed ownership. Bitcoins never leave the blockchain, what happens in essence, when a transaction is executed, is a change of ownership. Ownership of those particular coins become assigned to the receivers blockchain identifier(What we call the private key)
Yes, because the bitcoin/cryptocurrencies industry has many third party enterprises or intermediaries who provide services which enable us to interact with the blockchain as well as communicate and interact with other people engaged in the blockchain.
These third party engagements, though necessary are however the weak links in the ecosystem. These intermediaries include wallet services, exchanges or trading platforms, cloud minning companies among other pseudocrypto enterprises.
Every intermediary or enterprise in the cryptospace is responsible for its own security which makes its users subject to its security flaws and deficiencies which has been responsible for the hacks and thefts that have often made headline news.
Picture this scenario:
I have gold coins (bitcoin) in an annonymous but uniquely marked post office box located in a location with the best security in the world. Now because of the top notch security there, its impossible for anyone to steal my gold coins but the issue is I keep my post box keys at home (bitcoin wallet, exchange etc)where security is limited, which makes my home the prime target of hackers/thieves.
My keys, being an item of value that i can exchange for good and services make necessary a need for trading centres (exchanges) where i can exchange my keys for other valuable keys or for cash.
Now, because of the need for such services such as a home to keep your keys( wallet) and a trading centre to exchange you keys for other forms of value, thefts and hacks do arise from time to time dependent on the personal security of your home or trading centres .
Now because of the annonymous nature of the postboxes a hacker who obtains my keys can walk into the postoffice and access my box using my unique identifier(secret keys) and move my gold coins into another box. Once this is done my goldcoins are gone and though i can trace where they have been moved to via the blockchain explorer, I do not know who owns that new box nor have the keys to the new box; simply put i have been hacked.
In conclusion, anytime you come across a post that says: Bitcoin hacked or bitcoins stolen be reminded that it was not the technology that was hacked but a third party enterprise be it a wallet service, an exchange or pseudocrypto company that got hacked.
Good news is there are innovations in the cryptocurrency space such as paper wallets and hardwallets(trezor, keep, ledger nano etc) that are providing services that are hack and theft proof which have ensured a hack-free journey for many people thus far.
Other guidelines to observe are:
-Make sure to have your two-factor authentication turned on.
-Do not leave huge sums of digital currency on exchanges for long periods of time, move long term holdings to hardwallet and let the money left on exchanges be that which you can afford to lose in case the exchange website crashes or gets hacked.
-Be selective in your choice of cryptocurrency wallets. Make sure to use wallets that allow you access to your private key and with superior technology.
-Avoid sharing private wallet information with people online or giving a little too much details about your portfolio.
-Exercise caution when transferring or sending out money in the cryptospace. One wrong character in the receiver’s public address can result to an irreversible loss of funds.
In essence, Cryptocurrency means being your own bank and being your own bank means being your own security so if you decide to invest in crypto, make sure to invest in your security as well
Business Developer and Crypto Geek