Investors all over the world are swarming to buy Bitcoin, prompting some governments to step in with severe regulations. The success of bitcoin fueled the rise of legions of followers, including hundreds of new cryptocurrency launches and a wave of startups predicated on blockchain technology.
Nonetheless, with all the fuss and hubbub surrounding bitcoin, many investors are still unsure about the security of the currency itself. Can bitcoin be hacked? If so, how can investors work to protect their investments?
- Bitcoin is a decentralized digital currency that uses cryptography to secure transactions.
- Bitcoin transactions are recorded in a digital ledger called a blockchain.
- Blockchain technology and users' constant review of the system have made it difficult to hack bitcoins.
- Hackers can steal bitcoins by gaining access to bitcoin owners' digital wallets.
Bitcoin and Security
Bitcoin was launched in 2009 as a decentralized digital currency, meaning that it would not be overseen or regulated by any one administrator, like a government or bank. Peer-to-peer transactions have fueled the rise of the digital currency world, and bitcoin has been at the forefront throughout. The blockchain is a public ledger used to verify and record these transactions.
The issue of security has been a fundamental one for bitcoin since its development. On one hand, bitcoin itself is very difficult to hack, and that is largely due to the blockchain technology which supports it. As blockchain is constantly being reviewed by bitcoin users, hacks are unlikely.
On the other hand, however, the fact that bitcoin itself is difficult to hack does not mean that it's necessarily a safe investment. There does exist the potential for security risks at various stages of the trading process.
Wallets and the Transaction Process
Bitcoins are held in wallets and traded through digital currency exchanges like Coinbase. There are various security risks inherent in each of these two components. Developers are always improving wallet security, but there are also those looking to access other peoples' wallets illegally to swipe their tokens and coins.
In the transaction process, two-factor identification is commonly used as a security measure. Of course, having the security of a transaction linked to an email address or a cell phone number means that anyone with access to those components can authenticate transactions. If hackers can determine some of your non-cryptocurrency-related personal information, they may be able to infiltrate your transactions in that space regardless.
Bitcoin users are assigned private keys, which allows access to their bitcoins. Hackers can infiltrate wallets and steal bitcoins if they know a user's private key.
There have been widely publicized frauds, scams, and hacks that have plagued individual investors and even major cryptocurrency exchanges in their short history. Part of the issue is simply that the technology and space are new.
While this makes cryptocurrencies like bitcoin incredibly exciting—and potentially very profitable—investments, it also means that there are those looking to capitalize on security holes before they are corrected. All bitcoin investors are advised to take proper precautions to best protect their holdings.