October 28, 2021 1:25 pm in Bitcoin

Bitcoin Security: What You Wanted to Know

Bitcoin is one of the world’s most popular cryptocurrencies, and it is here to stay. It is also one of the cryptocurrencies with the most complex security system. Bitcoin is decentralized and uses blockchain technology, which is quite robust, to record its transactions. While it is pretty volatile, it offers several benefits to merchants and customers. However, there is also an increase in cyber attacks on Bitcoin wallets and exchanges.

Bitcoin Blockchain Technology

For transaction verification and proof of work system, Bitcoin uses SHA-256 encryption, and its security protocol lies in the transaction blockchain. This makes it safe since virtual private networks, the military, and banks use a similar security level to encrypt their systems.

While encryption can get decrypted for every transaction, the SHA hash function offers a special fingerprint that cannot be reconstructed. Note that Bitcoin does not use encryption. On the contrary, it uses Elliptic Curve Digital Signature Algorithm.

Essentially, the blockchain is a chain of several ‘blocks’ that have one’s transaction history. The genesis block is the initial block starting the blockchain. Solved hashes and transactions add new blocks, creating a blockchain, and it is impossible to modify them. Bitcoin will only be considered spent once your transaction is verified.

Fundamentally, blockchains’ cryptography is used in signing data with a special unbreakable identifier that can be verified by other network participants using a similar cryptographic algorithm. The security in a blockchain is also built by consensus.

Bitcoin Safety

Bitcoin is safe because it is built on blockchain technology.

Below are reasons why bitcoin is safe:

It Does Not Need Permissions

Bitcoin is decentralized and public and does not have any regulatory body. The lack of permissions keeps it fair and open to all individuals.

It is Decentralized

The distributed network of Bitcoin has more than ten thousand nodes globally that keep track of all the transactions taking place in the system. The numerous nodes ensure that should something happen to one of the nodes or servers, the others will pick up the slack.

Additionally, this means it is pointless to try to hack into the servers. The other nodes and servers will prevent you from stealing anything, well, unless you control 51% of the nodes, which is unlikely.

Bitcoin is Public

The term public may make it sound like it is not the safest option. However, Bitcoin has ledger transparency, meaning that while the individuals involved are anonymous, every transaction is accessible to the public. Therefore, this makes it pretty difficult to scam or cheat the system. Since everyone can see the transactions, there is nothing for hackers to ‘hack in’ and see.

Bitcoin is a safer option when you compare it to conventional companies’ data breaches. You do not have to add any personal information like your physical address, credit card number, or password to your blockchain when you sell or buy Bitcoin, so there is no information to leak. This is different compared to when hackers break into conventional financial systems.

It Uses Secure Cryptography

Bitcoin is backed by blockchain technology, which is what essentially makes it safe and secure. Blockchain technology relies on cryptography and secure core concepts, unlike other financial solutions. Bitcoin’s data security is strong, and its transactions are irreversible.

Bitcoin’s Security Issues

Bitcoin is one of the safest cryptocurrencies, but it has a few security risks. Below are some of the risks you should know about.

Bitcoin Can Be Stolen

While Bitcoin’s blockchain cannot be hacked since the information is accessible to the public, there is a possibility of Bitcoin getting hacked. Hackers can use other methods to steal Bitcoin.

Below are a few threats to your Bitcoin:

Malware

Most malware strains are often around Bitcoin wallets and Bitcoins. Therefore, you have to be on the lookout for crypto mining malware, which can force your computer to mine cryptocurrency for hackers or any malicious codes that could access your wallet.

Man-in-the-middle Attacks

Hackers can launch this attack on your wallet or node.

Fake Websites

Fake websites will trick you into giving your information to hackers.

Phishing Attacks

Hackers can use this social engineering technique in tricking you to reveal your personal information, from your crypto wallet details to your bank details. Therefore, it would be best to be careful of spoofed messages or emails that need you to provide your personal information.

Some hackers are pretty crafty and can steal your wallet key from cold storage. It would be best to take all the necessary safety measures so you can browse, mine, and trade securely.

You Can Lose Your Bitcoin Password

Often, most individuals store their Bitcoin in a crypto wallet, and you need a password to access your wallet. Therefore, should you forget your Bitcoin password, you will be in trouble. This is because there is no one you can call to recover your account. Most individuals have lost plenty of dollars because they forgot their crypto wallet password.

It would be best to use a password manager to avoid forgetting your password or use a password that you will not forget easily.

Bitcoin is Volatile

Bitcoin utilizes secure cryptography, but it is pretty volatile. Bitcoin has no regulatory body and has a 24/7 international market. Bitcoin can be worth $60,000 and a few days later go for $30,000. While sometimes it is stable for a specific period, that does not last long. Therefore, it will help to do extensive research before investing in Bitcoin or any other cryptocurrency.

Bitcoin Is Not Anonymous

Bitcoin disguises your personal information, but it does not disguise your crypto wallet’s address, meaning you are not anonymous. Instead, you are pseudonymous, so someone could track your personal information down using clues. Cybercriminals will use various illegitimate ways to get information while governments can subpoena the information. Since Bitcoin’s ledgers are public, once someone knows how much you have spent, where and when you spent it, they can look up your transaction on the ledger then trace it to your crypto wallet. This makes it easy for them to collect data on your life and spending habits.

Tips for Bitcoin Privacy

There are different ways you can protect yourself from Bitcoin security risks. Below are a few tips you can employ to ensure you avoid some security risks.

Secure Your Devices

New Bitcoin malware, security concerns, and threats keep emerging. Luckily, you can avoid them by protecting your information and devices using comprehensive security software.

Use Virtual Private Network

Use a virtual private network (VPN) when away from your secure work or home network. VPN is a software piece offering you a secure internet connection. Therefore, a third party will not be able to read or intercept your data. Different software products can also help in safeguarding your online privacy wherever you go.

Avoid Public Wi-Fi Networks

Most public Wi-Fi networks are usually unsecured, so when you connect your device to them, they open up your information and device to multiple threats.

Securing Your Bitcoin Wallet

While there has been an increase in cyber attacks, crypto wallets are also becoming more secure. There are different wallet options you can select from, and they all have different security needs you need to consider. Wallets are still one of the best ways to store your crypto. Below are a few wallet options.

Offline Wallets

Your offline or cold wallet should be physically secure because losing it means you will permanently have lost all the Bitcoin it holds. Usually, you are required to install the wallet software on a live CD or bootable USB to ensure that the operating system has no virus, does not store, log, or cache your wallet keys anywhere. Consider storing your cold wallet in a bank vault.

If you encrypt your offline wallet, it would be best to remember the passphrase. It is almost impossible for hackers to steal from an offline wallet because they will require to physically access the wallet and need the password or PIN.

Software Wallet

Your Bitcoin wallet should be treated similarly to your conventional wallet. The best thing to do when dealing with Bitcoin is using your cold and hot wallet. Hot wallets are online wallets, and you should only leave a small amount of your Bitcoin here for your everyday use. Use the cold wallet to hold the rest of the balance. This will significantly protect your Bitcoin from malware.

Hardware Wallets

Hardware wallets offer the same security level as cold wallets but are easier to use. They are often used to store a user’s private keys and are essentially physical devices acting like a flash drive. The private keys will not be exposed even if they are connected to another device because the signing of the transaction can only be completed onboard the device. Additionally, a user can still use them on a device they do not trust. You have to ensure that you keep the password or PIN needed to access the private keys securely.

Multi-Signature Wallets

Plenty of hardware and software wallets only need one signature key, meaning that all the funds in the wallet will be lost should the key be stolen or lost. On the other hand, multi-signature wallets need at least two private keys to approve a transaction. This significantly decreases the possibility of your wallet getting accessed when the key gets stolen or lost.

These wallets can significantly improve your wallet security. It helps to have at least three keys. Store one in your mobile device, the other in a secure location, and the other with a multi-signature provider.

Paper Wallets

While Bitcoin is a digital currency, it is possible to keep it analog and secure. You can use paper wallets to store your Bitcoin offline. This completely removes the chance of your Bitcoin getting stolen by computer viruses or hackers. All you will need to do is print the content of your wallet to create a physical record that you will keep secure.

Essentially, you will print the private and public keys. Paper wallets can be created by plenty of wallet software, with the keys’ QR codes that are scannable and can be added to the software wallet. Paper wallets used to be the most popular method of storing Bitcoin, but more people opt to store their Bitcoin in hardware wallets since they make safeguarding and managing crypto a lot easier.

Bitcoin is not just a passing internet fad, but it is here to stay. It will help to do extensive research and be well informed before investing in Bitcoin. It is like any other investment. You will ultimately decide whether or not it is a worthwhile investment for you. Generally, it is safe and secure, and there are several ways you can safeguard your Bitcoin from hackers. With some effort and planning, you will be able to keep your Bitcoin secure.