Bitcoin and blockchain have gained tremendous popularity recently. This is partly due to the 2000% increase in price which; has turned many early investors into millionaires in a short time. In fact, if you were to visit a tech blog right now; you would definitely come across countless success stories and discussions about Bitcoin and blockchain technology.
But keep in mind it’s also drawing the attention of cybercriminals. So if you’re thinking of investing in Bitcoins, it’s important to be aware of the risks.
Explaining blockchain and Bitcoin
Blockchain is a decentralised database of transactions. Each time a new transaction, or block, is created; it is distributed across a network of computers that verify its authenticity. Because there’s no centralised version of the transaction; it’s difficult to tamper with records in the blockchain.
And since blockchains use advanced encryption methods, personal information is kept private. The only thing other participants in the transaction can see are the relevant details pertaining to the purchase and payment.
While not many people are familiar with blockchain technology; most of them have probably been introduced to the digital currency that utilises it: Bitcoin.
Traditionally, when two strangers exchange money over the internet it requires intermediaries like PayPal or a bank to verify the transaction. The problem with this method, other than the third party charging you a fee, is that; their centralised records can be hacked. Bitcoin cuts out the middleman altogether, making it so that every transaction is verified by the Bitcoin community. This significantly reduces the chances of hackers compromising your personal and financial data.
The supply of Bitcoin is also capped at 21 million digital tokens, which solves the inherent inflation problem many regulatory bodies like the Reserve Bank of Australia must induce. Its limited supply is also a huge reason why its value has risen dramatically. In 2009, 10,000 Bitcoins were worth $20. Now one Bitcoin is valued at nearly $22,000.
Are they hackable?
Bitcoins may seem secure because they’re decentralised, tamper-resistant, and encrypted, but those measures don’t make them completely invulnerable to malware and other cyberattacks. Hackers, like many investors, understand the value of Bitcoin and have created several tactics to steal them.
Bitcoin miner malware
Mining Bitcoins is difficult because there’s only a limited number of coins that can be mined. A few years ago people could generate Bitcoins from a basic home PC in just a couple of hours. Today, Bitcoin mining requires dedicated servers running around the clock just to produce one coin. Due to this complexity, electricity, and cooling costs are the biggest operational expenses to a Bitcoin miner.
The more malicious miners, however, “borrow” resources from other computers by installing malware; and in fact many malware strains developed today are actually used to mine Bitcoin. Although they’re less dangerous to one’s computer network than denial-of-service and ransomware; Bitcoin miner malware can cost victims a lot of money and tend to use a lot of processing power so a compromised computer will slow down dramatically.
Fortunately, Bitcoin miner malware isn’t particularly sophisticated yet; and can be detected by most antivirus software. So as soon as you notice your computer slowing down; run a full system scan and remove the malware. You should also reinforce your networks with firewalls and intrusion prevention systems to reduce the risk of infection.
Stolen cryptocurrency wallets
Every person who deals in Bitcoin has a cryptocurrency wallet, which is a program used to store private keys — a sequence of numbers that allows you to check your balance or make transactions on the blockchain.
There are web and desktop cryptocurrency wallets that make handling Bitcoin easy, but we caution against storing large amounts of coins through web wallets because hackers have ways to get into them. Ransomware is also a huge issue for desktop wallets. If your wallet were to become corrupted, you wouldn’t be able to access your Bitcoins.
The best way to protect your Bitcoins is by storing them in a hardware wallet like a USB drive that’s not connected to the internet. Just make sure you encrypt the wallet with a strong and complex password in case the device gets lost or stolen.
Hacked cryptocurrency sites
Another common way Bitcoins can be compromised is by hacking the sites that manage them. Quite recently, a Bitcoin mining site, NiceHash, was hacked and lost almost $64 million (USD) in Bitcoin. What’s worse is Bitcoins are difficult to track, so whenever mining sites or desktop wallets get hacked, the money is lost forever. That’s why it’s important to have backups of your Bitcoin in an offline wallet.
If you are planning on doing business with a cryptocurrency service, the first thing you should do is make sure their site is secure. Look for whether the website’s URL is prefaced with “https” or a padlock symbol, which indicates that the site uses secure SSL encryption to protect the communications between a web server and a browser.
You also want to contact the company and understand how they will safeguard your Bitcoins. If you don’t understand any of the technical terms they throw at you, consult an IT services provider.
Cryptocurrency Trojans are a type of malware that stays dormant in your computer, waiting for you to make a transaction. Just before you send Bitcoins to another account, the Trojan will instantly replace your account number with a hacker’s account. Unless you’re keeping a close eye on account numbers, your money will certainly be lost as soon as you hit “send.”
Prevention and awareness are key to defending against cryptocurrency Trojans. They often look like innocuous programs, so you should be careful when downloading anything from the internet. Be extremely cautious with emails that contain suspicious file attachments or with websites that offer “free” software.
Running a full system scan with antivirus software should also be common practice before making any transactions.
Stick to large public blockchains
One important thing to remember regarding blockchains is that large public blockchains are more secure than small private ones. This is because, to alter the information within a blockchain, a hacker must be able to simultaneously compromise 51% of computers in the network. Smaller private blockchains are therefore easier to compromise due to there being fewer computers.
So even though trading Bitcoins over a public network may take longer than a private one, yours will be significantly more secure.
While Bitcoin and blockchain have many benefits, it’s important to be aware of the risks before you invest. Additionally, the technology is still technically in its infancy, so more blockchain and Bitcoin related hacks will likely appear in the future. Follow us on LinkedIn for latest IT and technology news.