Crypto currencies like Bitcoin have attracted investors from all over the world who are willing to take a chance on the market in the hopes of getting rich quick. Following Bitcoin’s success, a plethora of similar initiatives, imitations, and fans have emerged. Not to be outdone, criminals also came across openings; after all, where there is the prospect of wealth, there is also the chance to steal it.
Your cryptocurrency can be hacked because there are vulnerabilities that cybercriminals can exploit, but this is only possible in very specific cases. So, what steps can you take to safeguard your financial future?
- In order to ensure the privacy of its users and the integrity of their financial dealings, cryptocurrency employs cryptography.
- Digital currency transactions are recorded in a distributed ledger known as a blockchain.
- The fundamental ideas behind blockchain technology make hacking them extremely difficult. On the other hand, thieves can exploit vulnerabilities not directly related to the blockchain.
- To steal cryptocurrency, hackers target users’ cryptocurrency wallets and exchange accounts.
Bitcoin was introduced in 2009, and it is a digital currency that is decentralized, meaning that it is not controlled by any central authority. The proliferation of cryptocurrency through P2P exchanges ushered in a new era of digital commerce in which virtually anything could be “tokenized” on the blockchain.
Blockchains are public ledgers that record and verify all transactions within a blockchain network, including those involving cryptocurrencies. Transactions, including the amounts sent and received and the corresponding anonymous addresses, are publicly viewable. These public ledgers, however, do not allow for manual entry or modification of data; all transactions are processed and verified in a fully automated fashion thanks to the use of scripts, programming, and other forms of automated logic.
The Blockchain: How Is It Protected?
Cryptographic techniques and consensus mechanisms are used in a blockchain to ensure safety. Each block in a blockchain contains encrypted transaction data as well as data from previous blocks. Using encrypted information, the entire ledger can be linked together securely. Adding a new block strengthens the system as a whole.
Since it is impossible to introduce malicious code into an existing blockchain or “hack” into a network using brute force, a blockchain cannot be “hacked” in the conventional sense.
Can You Attack a Blockchain?
By controlling the network’s computational power, or hashrate, an attacker or group of attackers can effectively take over a blockchain. A 51% attack occurs when a single entity controls more than 50% of the network’s hashrate and uses that control to forcibly implement changes to the blockchain. This gives them the ability to alter transactions that were pending blockchain confirmation at the time of their takeover. Six confirmations are required before a transaction is considered complete.
An example of a first confirmation would be sending 1 BTC to a friend, which would be recorded and confirmed in the same block. The second confirmation occurs when the information from that block is included in the following block, validated, and the previous block is closed. For the network to complete the transaction, this must occur four more times. A 51% attack can undo transactions that have not yet been processed.
After the network has not confirmed a transaction, the tokens involved can be used by attackers. The coins can be sent to a secret address, and the rewritten blockchain will behave in accordance with the new rules they’ve set up.
Although this type of attack has been successful against smaller blockchains, the high cost of acquiring 51% of the hashrate (BTC) or staked crypto in a network with a large number of participants makes networks like Bitcoin and Ethereum nearly impossible to successfully attack (ETH).
Where Crypto currency Hacks Happen
The token, or long string of encrypted numbers, on a blockchain proves ownership of a cryptocurrency. The private key for each token is kept safely by its owner or a person designated by them. The token and associated number could be hacked, but due to encryption measures, it would take a lot of time and effort to do so.
Fraudulent Attempts to Steal Wallets
Since private keys must be encrypted, their safekeeping presents a security risk for blockchain and digital currencies. Not your keys, not your coin is a common saying in the world of cryptocurrencies.
If you don’t have the keys to your crypto, you don’t have any say over what happens to your crypto, regardless of the circumstances, as implied by this proverb. By creating a custodial relationship between you and the person or organization you entrust with your keys, you give that person or organization control over your cryptocurrency.
In principle, a private key can be broken into. However, the value of a single key is a cryptographically hashed number between 1 and 2256 (115 quasi-octillion) (a quattuorvigintillion is 1 followed by 75 zeros). Existing technology would need centuries, if not millennia, to crack the encryption.
Most theft and hacking happens at the wallet level because that is where private keys are kept. Wallets, which are programs for computers and mobile devices, are where all private keys are kept. They can also be written down on paper or stored on devices like USB flash drives.
Depending on their status, electronic and software wallets are either online (hot) or offline (cold). Exchanges typically provide users with hot and cold storage options, both of which are custodial because the exchange keeps the keys.
Both software and hardware can be compromised. Hackers can steal your cryptocurrency if they gain access to the private keys stored in your application or device wallet.
In spite of assurances to the contrary, custodial key holders always represent a security risk. The private keys and reserve supply of many customers’ cryptocurrencies are typically held by exchanges. Because of this, they are a tempting target for cybercriminals.
Criminals aim to break into cryptocurrency exchanges in order to steal the private keys. Avoid losing cryptocurrency to an exchange hack by keeping your private keys in a safe location away from the public.
How to Secure Your Crypto currency
It’s not hard to prevent the theft of your cryptocurrency by following a few simple procedures. Understanding where your keys are kept, who else might get their hands on them, and what you can do to make them unreachable are all crucial considerations.
Wallets fall into one of four categories: hot, cold, custodial, and non-custodial. Any wallet that can be connected to another device or the internet is considered a “hot wallet,” and is therefore the least secure type of wallet. Never trust keeping your keys on a device that has an always-on or easily accessible connection. If it has internet access and you use an app to access your keys, it can be compromised.
You can store cryptocurrency without using a dedicated wallet device, despite what you may read in ads and wallet reviews. You can also use an encrypted USB drive. However, USB connections degrade over time, and a cold storage device becomes hot storage the moment it is connected to a computer or other connected device.
Unfortunately, there is no foolproof way to store keys that will remain intact indefinitely. But think about how many people have their bank accounts hacked into and their money stolen because of the lack of security measures in place. Protecting private keys is equivalent to guarding other forms of sensitive data.
Non-custodial cold wallets are the most secure wallets. Anyplace from a piece of paper in a safe with the keys written on it to a device with passkeys and additional encryption can be used. Paper wallets are a stopgap measure at best due to their fragility.
There are plenty of Bitcoin and cryptocurrency security and convenience tools available on the market, but the best way to protect your crypto from hackers and thieves is to follow some basic guidelines:
- Don’t keep your keys in a digital wallet on your smartphone or any other device that can connect to the internet.
- Always keep your private keys in a secure location.
- If you’re not sure about trusting someone else with your keys, don’t give them to them.
- When making a cryptocurrency transaction, only transfer the necessary keys to your hot wallet, complete the transaction, and then immediately withdraw the keys.
- Maintain your cold storage technique in a safe, humidity-controlled area that is not connected to the internet in any way, wired or wireless.
- Make sure your gadgets are holding up by checking on them occasionally. If your keys are, you need to move them to a safer place.
- Never share your private keys with anyone else.
Which Cryptocurrency Has Been Hacked?
Coins denominated in a cryptocurrency can’t be stolen in the first place. But several cryptocurrencies, including Bitcoin Satoshi Vision (BSV), Bitcoin Gold (BTG), and Ethereum Classic, have been subject to 51% attacks.
Can Someone Steal My Cryptocurrency?
Lacking proper precautions, your cryptocurrency and private keys could be stolen.
Can Hackers Steal Crypto?
That crypto can be stolen, and has been stolen, by hackers is a well-established fact. Exchanges, wallets, and decentralized finance applications are favored targets because of their vulnerabilities.