Digital currency market cap crossed 600 billion USD on 18 Dec, 2017 and since this currency is in the form of 0s and 1s, it’s a platform whose resistance from getting hacked will be greatly tested in days to come.
The underlying technology of Bitcoin and every digital currency is Blockchain. The blockchain is an electronic ledger that is distributed across thousands of computers that are geographically separated. This distributed network of computers holding electronic ledger form the Bitcoin blockchain.
The blockchain is the internet of value that gives us the ability to not only transmit the information but value in the blink of an eye to anyone anywhere in the world. The answer to how secure and forge-proof Bitcoin lies on how secure its Blockchain is.
Bitcoin blockchain is public which means anyone can read and write transactions on it. Bitcoin blockchain has robust protocols (Proof-of-Work and Consensus Protocol) that ensure only valid transaction goes to the digital ledger and not the forge one.
Bitcoin Blockchain uses the concept of proof-of-work for security and address issues of forge like ‘double spending problem’ – a single coin is being spent twice by the owner.
Bitcoin uses the Hashcash proof-of-work system. Proof-of-work is a procedure that groups up the transactions and adds them to the block. There is a cost (in terms of computation power and electricity) to generate new blocks. Every block point back to the previous block in the chain, that’s why it’s called blockchain. All blocks have the same set of transactions in the entire distributed ledger, say if block 21 has a transaction F in it, every ledger block 21 will also have a replica of transaction ‘F’. So if somebody tries to add a fake transaction in Bitcoin Blockchain ledger, he has to add this in all ledgers and update all previous blocks linked with that block, it’s something not possible with current computing resources
There are special nodes called ‘Miners’ who do this proof-of-work and are rewarded with Bitcoin’s as an incentive for rendering their services, once a transaction is written on the blockchain it remain there forever and can’t be altered later.
The Consensus Protocol
It’s a process by which a network of nodes confirms the record of previously verified transactions, and by which it verifies new transactions.
How Hackers are Benefiting from digital currency
Nicehash, a Slovenian digital currency mining marketplace, lost about $64 million worth of bitcoin due to hack of its payment system on Dec 7, 2017.
But it’s important to understand that it was not Bitcoin Blockchain who got hacked, it was a crypto exchange digital system that got hacked. Crypto exchanges are turning out to be a paradise for hackers, as its almost impossible with current computing power to make a breach in Bitcoin Blockchain.
“Sophisticated criminal groups are increasingly targeting the digital currency industry, focusing on exchanges and other types of firms in the sector”, said Noam Jolles, a senior intelligence specialist with Israeli cyber-security company Diskin Advanced Technologies. (Source)
Hackers also have the potential to hack mobile and web wallets to steal Bitcoin private keys.
Hackers these days are searching all around for their share from Bitcoin massive market. Some simple precautions can save you from losing your money, one recommended approach to safe your Bitcoins is “Cold Storage”.
Bitcoin works on the principle of public/private key combination. A public key is a code available to everyone, while the private key is secret and should never be shared with anyone.
It’s like the public key is your home address, while the private key is your home key. Whenever you store your private key with a crypto exchange or mobile wallet you are sharing access to your Bitcoins with someone else. Hackers can become the rightful owner of your coins once they got your key by breaking into the crypto exchange, mobile or web wallet.
It’s important that you store your private key offline on some piece of paper not digitally. This is what’s known as cold storage.
This is perhaps the drawback of bitcoin that once you lose your private key there is no way you can secure it.
A typical bitcoin private key is nothing more than a string of digits, like
As far as bitcoin immunity from hackers is concerned, it’s 100 percent. Till date, there is no record of an incident where hackers have successfully breached Bitcoin Blockchain and hacked Bitcoin residing there. Their only way to get Bitcoin right now is by hacking the third-party system (laptops, crypto exchanges) where Bitcoin keys are stored.