One of the biggest claimed benefits for cryptocurrency is its security. The blockchain – the digital ledger that tracks the movement of each piece – cannot be hacked. Money cannot disappear from someone's handbag, never to be seen again. It is possible to look at the records on the blockchain and see what happened to each piece from the time it was extracted to its current position. Here's why cryptocurrency is still secure despite hackers.
In theory, Bitcoin should be stolen money. In practice, it did not work that way.
As soon as digital currencies gained value, they caught the eye of thieves. And these thieves were very intelligent and very efficient. Robbing a bank usually means buying a hood and a gun and risking being shot by a security guard. Theft of a digital coin can usually be done in a thief's room using nothing more dangerous than a keyboard and an Internet connection.
But while the risk is low, the rewards can be enormous. The 2014 flight to Mt. Gox, then the world's largest cryptocurrency exchange, was worth $ 460 million. In 2018, thieves took $ 500 million of NEM from CoinCheck.
The largest physical bank robbery, which took place in Brazil in 2005, was "only" worth $ 69.8 million. In 2019 alone, criminals fled with $ 4.26 billion in digital coins, according to a report.
This could suggest that the security of cryptocurrencies is overestimated and that you better put your money in a metal box under the bed.
But it is not that simple.
No hacking took place on the blockchain itself.
A few hacks have been the result of attacks on individual phones, but most of the thefts have occurred during exchanges. An exchange is where people store their coins before transferring them into a transaction or converting them to a trust.
As far as thieves are concerned, exchanges are where the money is.
A hacker who can break into the exchange system and access user keys can do whatever he wants with other people's funds. And although the money thieves make cannot be coerced – a blockchain usually does not cancel transactions – the money can be tracked.
The digital register records the movement of each piece. Everyone can see where their money went after it was stolen from the exchange. An individual cannot see who owns the public key to which their funds are associated, but can see the key itself.
This means that even if the victims cannot recover their money, they can freeze it.
After CoinCheck was hacked, the exchange identified and published a list of eleven addresses that contained all of its stolen coins.
Each of these addresses now has a tag indicating:
The developers then created a tool that allowed exchanges to automatically reject these parts.
So, while the value of the theft could have been half a billion dollars, these stolen coins are now pretty much worthless for cheating scummy-scurrvy-dirty-rotten-cheating-[asswipes] who are thieves. The original owners may not be able to recover them, but thieves also cannot move them. It is as if a bank had placed a special dye in its banknotes which had made them black as soon as they were stolen.
These events have some implications for users of cryptocurrencies.
- First of all, we should all be aware that despite the hype about cryptosecurity, it is possible to be stolen, so they have to be careful.
- Second, keep your private keys safe.
- Only store online the amounts needed to make transfers and make transactions.
- Private deep sea keys must be kept in a cold room so that they cannot be hacked. But users should not fear the loss of their parts. Unlike theater goers with bulging wallets and expensive jewelry, individuals are generally not the target of digital attackers who seek to steal digital money.
- The weak links in the cryptocurrency system are exchanges, not blockchain or individuals.
- Cryptocurrency users should only use exchanges that carry insurance. When Binance was the victim of a $ 40 million theft earlier this year, the company announced a "large-scale security breach".
- No Binance client has suffered personal loss as the stock market has been able to draw on their emergency insurance fund.
The existence of insurance funds will become an increasingly important attraction for people choosing an exchange.
The insurance purchased costs exchange money. Because the Exchange is putting money into insurance, it will force the Exchange to pay even more attention to its security. Exchanges are trying to make their systems more difficult to hack. At the same time, as blockchains freeze wallets that hold stolen funds – the rewards for a successful hack will decrease.
Crypto crime will not go away, but it will become less of a threat, making cryptocurrencies more and more secure.