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Or perhaps you may also think of it as currencies criminals use to fund their operations. In any case, there is no doubt that there has been an explosive rise in popularity of cryptocurrencies due to the increased value of Bitcoin and Ethereum as well as the adoption of these cryptocurrencies from mainstream companies such as Paypal and Tesla. While many sell and purchase cryptocurrency for investment and profit, few understand its underlying algorithms that ensure security and transparency.
As these currencies are not backed up by any physical assets or government, some have voiced concerns about their potential flaws, saying that they can cause attackers to steal assets in a way that is almost to track. However, in this flood of media coverage, it becomes overwhelming to distinguish legitimate vulnerabilities and unnecessary fears.
Today, we demystify some of these issues by categorizing and analyzing common security issues concerning cryptocurrencies, coming to a conclusion that many of them are not directly a result of flaws in cryptocurrency blockchain technology.
Type 1: Vulnerabilities in Blockchain Technology This classifies vulnerabilities in the cryptocurrency algorithm itself. Many cryptocurrencies, including Bitcoin, use proof-of-work to prevent double spending. In short, this method makes it impractical to make any attempts to double spend or reverse transactions , as doing so would cost incredible amounts of computational power.
This allows a wide range of malicious attacks, from stopping a requested transaction to allowing double spending. Although these facts are concerning, acquiring the necessary computational power to attack well known cryptocurrencies is incredibly difficult, considering that in Bitcoin, the largest out of them all, miners spend more energy than the United Arab Emirates and Argentina.
This problem mainly exists in some 8, Altcoins created after the cryptocurrency boom, with much fewer total miners than established cryptocurrencies. In recent years, researchers, such as ones at MIT, have developed methods to detect and prevent such attacks.
However, the fight is far from over, as hackers have successfully manipulated blockchain from Ethereum Classic , listed in Coinbase, a popular crypto exchange platform. Other sets of vulnerabilities rise from continuous technological development in quantum computing, which has been known to break many asymmetric cryptographic algorithms.
Recent research showed quantum computers may break RSA by Although quantum computers are in infancy, they will inevitably break current forms of cryptocurrency, posing a grave threat to them in the future. Only time will tell. This information may seem frightening, but let us compare the relative risks against traditional banking institutions. Unlike cryptocurrencies, traditional financial institutions have a centralized entity controlling and monitoring every transaction. This requires enormous trust from the users, and in general, putting all responsibility to one entity can lead to serious problems with security and integrity of the system.
The list of scandals is growing each year, with users increasingly distrusting large banks and financial institutions. But in spite of the era-defining success and paradigm-shifting changes cryptocurrencies brought to the financial industry, it could not stay above criticism because of the security vulnerabilities it has been subjected to a number of times.
While the success of Bitcoin and a few other leading cryptocurrencies continued to shape and dominate the throbbing digital economy , at the same time frequent cyberattacks on cryptocurrencies represent a dark reality as well. These cyber-attacks are also slowing down their overall acceptance and popularity in the market. Considering these security vulnerabilities and risks for cryptocurrencies it is important to understand how hackers can infiltrate the exchanges and transactions involving cryptocurrencies.
After explaining this we would like to explain the key security vulnerabilities for these building blocks of the digital economy. Why are Cryptocurrencies exposed to hacking? Cryptocurrency transactions and exchanges are increasingly becoming the prime targets of hackers and all sorts of malicious attacks. In the last year, the industry has experienced as many as five major attacks on cryptocurrency transactions.
Many emerging cryptocurrencies have become the worst sufferers of these attacks and some new cryptocurrencies like Bithumb, NiceHash, and Coincheck have been the biggest victims of the attacks. When it comes to security, there are basically 3 layers that come into the picture. They are respectively security protocol, the cryptocurrency exchange type, and the wallet used for transactions. Any security issues cropping up in any of these layers can ultimately help a hacker tamper with data and steal money from transactions.
Decentralized Blockchain database and centralized crypto exchanges The power of Blockchain mainly lies in the decentralized nature of the Blockchain database. By allowing the data to be stored across a multitude of blocks while controlling access through mutual cryptographic verification, Blockchain offers ultimate security cover to data and prevents no deletion, changes, and tampering of any data registered in the database.
While Blockchain is the elementary technology for cryptocurrencies in general, the same principle of decentralization is not maintained with the crypto transactions and this is what exposes them to security risks such as hacking of exchanges. The vast majority of the crypto exchanges follow a highly centralized model that further adds to the security risks and vulnerabilities.
Because of this centralized approach to carrying out transactions, there is unproportionally bigger dependence on a handful of wallets that can be easily targeted by hackers. Investing in cryptocurrency is safe, you can check out swyftx. Vulnerability to phishing attacks Phishing attacks that are stealthy enough to penetrate even the hardest security technologies are often found to be the number one culprits for messing with the bitcoin and other cryptocurrency exchanges.
