Is Bitcoin Safe? Full Security Analysis
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Since there have been a number of stories regarding ICO scams and million dollar cryptocurrency heists surfacing around over the last few years, you might be wondering ‘is Bitcoin a safe investment?’ or ‘Is cryptocurrency safe as a whole?’. Well, the good news is that yes! Bitcoin and all other cryptocurrencies are perhaps far more secure and safe as far as financial transactions are concerned. However, this does not necessarily suggest that Bitcoin’s security is invincible.
While bitcoin itself is secure, there are a number of factors that play a big role in case of a loss of bitcoins at the user’s end. Knowing all of these factors along with the way bitcoin’s security works is highly crucial to keeping your funds safe.
Is buying bitcoin safe?
Before landing on to a specific conclusion regarding how safe is bitcoin, let us take a look at a number of traits that bitcoin possesses. These traits/characteristics can play a role in either elevating or decreasing the bitcoin safety.
Bitcoin is an open source blockchain platform. This means that anyone can view and audit the code base on that bitcoin network. A wide number of highly skilled developers look for potential loopholes in this code and update it either voluntarily or a paid basis. This ensures that there are no chances for glitches and/or hack attempts. After all, the prime reason for crypto hacking and heists are the loopholes that exist in the network code. With Bitcoin having an open source network, these loopholes get removed, and the code is constantly improved for greater security.
Another factor that plays a great role in high bitcoin safety is its transparency. The transactions that are made using the Bitcoin network are not only public but they are also irreversible in nature. Such transparency in the ledger is more like an elementary trait that all secure cryptocurrencies must possess. Hence, speaking in strict mathematical terms, there is no way for anyone to conduct fake transactions or fraud by tampering the account balances.
If you have been researching about Bitcoin for a while now, you would already know that it offers a high level of anonymity. However, be informed, that bitcoin does not allow fully anonymous transactions. Rather, it offers something that is referred to as pseudo-anonymity. Due to pseudo-anonymity, bitcoin transactions will not require you to verify personal information such as a picture of your national identity card, address, or other confidential information.
Lastly, Bitcoin is fully decentralized. The transactions on the bitcoin network get validated by tens of thousands of computers (nodes) that keep a constant eye on the Bitcoin ledger. Traditionally, financial organizations store a vast amount of data on servers that are fully centralized. This increases the chances of fraud and money tampering but with Bitcoin, the case is literally the opposite.
Since no single entity or a person controls the bitcoin’s network, there are literally zero chances of fraud or corruption. Just for the sake of information, a hacker looking to control the Bitcoin’s network will have to control 51% of the tens of thousands of nodes that validate the transactions. It is obvious that something like this is practically impossible.
Things you need to know about bitcoin safety
Bitcoin payments are irreversible
One of the most notable traits of Bitcoins is that bitcoin transactions are totally irreversible. This means that once a transaction is committed, there is no ‘ctrl-z’ to undo the transaction. In other words, what is done is done! Most advocates of Bitcoin claim that this feature could help with bitcoin safety by defying any sort of control from banks or government organizations.
However, if you look at it, this irreversibility could also be a big flaw. This is because the lack of an undo option would only prevent the fraud from happening. However, the presence of an undo option would allow the detection and the mitigation of a fraud in case it does happen. After all, despite the chances of a fraud being close to zero, everything is possible!
Unconfirmed transactions aren’t secure
The life of a bitcoin transaction is inherently composed of two distinct steps. At first, the transaction gets propagated through the network. While the transaction is propagated through the network, it is considered to be unconfirmed. However, later when a miner secures the transaction into a block on to the ledger, the transaction is considered as ‘confirmed’. This usually happens after a minute of initiating the transaction. However, it might also take hours depending on the of the blockchain.
The loophole here is the fact that the unconfirmed transaction remains rather uncertain. Hence, there is a minimal yet possible chance of traders falling a victim to something called a double-donation. A double donation occurs when the user bends the transactions by substituting a different transaction so as to send the bitcoins back to themselves. This is similar to a chargeback that occurs in credit card frauds or chargebacks with PayPal.
Securing your wallet should be your first priority
You should always remember that it is your responsibility for keeping your funds secure at your end, in your wallet. Sometimes, viruses and malware designed to extract passwords also make people lose their funds from their bitcoin wallets.
In general, hardware wallets are more suitable and easier to manage because the security of these wallets is totally in your own hands. With hardware wallets, you will not get robbed off of your bitcoins via hacking or viruses. Simply put, you can lock your hardware wallet locked a safe place for a great level security.
There are a number of good practices that you can adapt so as to keep funds in your bitcoin wallet safe. These practices include:
- Keeping your computer safe from viruses and malware by keeping it updated and under the protection of a good antivirus program.
- Keeping your hardware wallet safe inside a lock instead of carrying it around in your wallet.
- Do not disclose your private wallet key to anyone.
- Erase all sources of your wallet from your computer after printing out the paper wallet.
- In case you store your private wallet information in your email, make sure that your email as double authentication on.
- Do not leave your laptop unattended.
Threats to bitcoin safety
Due to rapid fluctuations in the price of bitcoins, there is a constant influx of investors looking to invest their money in this presumed mine of gold. While bitcoin bags the attention of investors from all over the globe, it is also of great interests to hackers and con artists.
As far as the bitcoin network itself is concerned, there are nearly zero chances of hacking it. This is because it is fully decentralized with tens of thousands of nodes operating throughout the world. If a supposed hacking attempt does go successful, the bitcoin’s network would fully get destroyed. In order to hack individual users, the hacker would have to know the private key of the users. The private key itself is something that is not easy to guess.
However, it is certainly possible to hack bitcoin exchanges. In the past, there have been instances where a number of bitcoin exchanges have been hacked with thousands of Bitcoins worth of millions of pounds stolen straightaway. In one similar instance, Yobit went nearly bankrupt as a result of a cyber attack that stole about 17% of their assets.
Mining becomes too difficult
Another factor that could affect the security of bitcoins negatively is that the mining is becoming increasingly difficult. As of December 2017, one needed about 6,331 TH/s in order to get 1 BTC per day. This is a huge power requirement that only industrial-level equipment is capable of matching.
With an increase in difficulty, a lot of old users quickly see their equipment getting outdated, which results in a significant amount of miners leaving the network. There could possibly be a point where a small portion of the miners will own significant percentages of the Bitcoin funds hence increasing the centralization. This could ultimately trigger a 51% attack, which is a hypothetical cyber attack from a group of people owning 51% of the network’s hash rate. This would allow constant revision of the transaction history and new transactions will not be confirmed anymore. Technically, the bitcoin network would totally get hindered and destroyed.
Is bitcoin a safe investment?
In essence, investing in cryptocurrency is more like a game of chances unless you are a cryptocurrency veteran who could accurately predict the cryptocurrency market. For new investors, the concept of prediction remains somewhat aloof.
Every cryptocurrency sees a constant rise and decline in its prices throughout the time since its creation. It usually takes seconds for the prices to soar up a bit high and another minute for them to fall back again at the same spot. However, with bitcoin, this gap in the prices are huge! Near the end of 2017, the price of bitcoin soared up to greater than $19000 with a gap of $1000 in a single day. This allowed many people to make millions, while those who got rid of their bitcoins early on probably had to face a great level of the mental ordeal. Considering this fact, Bitcoin is perhaps the best cryptocurrency option for long-term investments.
As far as the security level goes, there are various ways using which one can keep his/her funds safe. The most effective way is to store the bitcoins in an offline hardware wallet and never in an exchange. This is because cryptocurrency exchanges usually undergo cyberattacks.
Another way to invest safely in bitcoins is to make use of a special investment asset called contract for difference. In this type of a contract, the sellers and the buyers both agree to cover up the difference in price as it falls or rises. Hence intrinsically, this contract depends more on the volatility of the bitcoin’s price.
In a Nutshell
While Bitcoin has a high level of security as compared to most of the traditional financial platforms out there, it is not totally invincible. There are a number of loopholes that allow hackers and cyber-attackers to rip people off either directly through viruses/malware or indirectly by hacking exchanges.
As far as the exchange of other crypto assets against bitcoins go, keeping the bitcoins stored in an exchange is probably the worst idea of all. This is because every once in a while, an exchange gets hacked and millions of dollar worth of cryptocurrency funds get stolen. Hence, the safest way to store bitcoins is to keep them safe in an offline hardware wallet.
We hope to have provided you enough valuable information regarding bitcoin’s security and safety. In order to find out more about Bitcoins and other cryptocurrencies, feel free to check out the other sections of our website.