The crypto boom has become the most powerful stimulus for investors as this is the opportunity you just cannot miss. This, in turn, leads to a rapid increase in the market capitalization of the crypto industry. And where there is big money, there will always be space for all sorts of scammers who want to get their hands on this money.
We often hear that the cryptocurrency is securely protected by encryption, which cannot be hacked, and the transactions themselves are checked by hundreds of validators, and this is what excludes the use of fraudulent schemes. And it is no longer possible to change these transactions. So why do reports about another hacking appear in the media with enviable regularity?
Is it safe to invest in digital assets? Let’s try to figure it out.
So, let’s consider the basic principles that characterize digital money:
- cryptocurrency should be understood as a kind of electronic money that uses a decentralized database (stored simultaneously on hundreds of servers around the world), called a blockchain, to store information about transactions;
- the blockchain itself is reliably protected from hacking attempts, but the infrastructure surrounding it and the human factor give a chance to hackers;
- the weak link of cryptocurrencies is wallets where tokens are stored. They are protected by a complex cryptographic password that cannot be hacked, but it can be stolen. In this regard, the security of crypto wallets is provided by its owner.
Ways to ensure blockchain security
Any blockchain consists of blocks, and a block consists of transactions. Each transaction is encrypted using hashing, that is, any information, regardless of its size, can be uniquely encoded with a binary number of a strictly defined length (most often 256 bits, which is enough to make it impossible to decrypt this number by brute force methods). In turn, a certain number of transactions are combined into a block, which receives its hash using the hashes of the transactions included in it and the hash of the previous block.
This design guarantees the impossibility of making changes to the blockchain, since changing even one bit will not go unnoticed and will radically change the hash chain. The use of a decentralized consensus mechanism means that any such transaction designed to change the contents of already formed blocks will be rejected by validators (network nodes that verify the correctness of transactions).
The second level of protection concerns transactions, they are protected by a public/private key pair. They are designed to authenticate the participants of the transaction, while the public key identifies the sender or recipient of the cryptocurrency, and the private key signs the transaction itself.
To crack such protection, it is necessary to get control over all nodes of the network that are validators, which is impossible to do.
Where do Cryptocurrency Hacks Happen?
If everything is so good, then why are there successful attacks?
It turns out that blockchain also has vulnerabilities, and we’ll consider the main ones.
If an attacker manages to accumulate enough computing resources (over 50% of the blockchain hashrate, that is, the total number of operations performed per second on a particular blockchain), then as a result he will be able to change the transactions that are not currently confirmed by validators. For bitcoin, the number of confirmations required for a successful transaction is 6.
These types of hacking are called “51% attack”. In an unconfirmed transaction, they can change the recipient’s address and steal money intended for another person.
For well-known cryptocurrencies with a large hashrate (from terahesh/second and more) it is not possible to concentrate the larger half of it in one hand, but for small blockchains such a risk exists.
Private key Theft
If a blockchain attack is an almost impossible task for an ordinary hacker, then he may try to gain access to a wallet on which cryptocurrency is stored.
As we have already noted, the owner of the crypto wallet is responsible for the safety of private keys, and this is vulnerability No. 1 for the entire numerous family of cryptocurrencies. Such wallets can be in the form of a PC program, a mobile application, or a hardware wallet (a device for storing keys on a flash drive).
As a rule, all such wallets advise to store private keys in a secure place, for example, on paper. But many users ignore such precautions, writing down a key that is almost impossible to remember (as a rule, it is 12 words) in one of the files.
And since a computer or smartphone can be hacked using a virus or other method, an attacker can get this file and use your private key at his disposal. Crypto exchanges use their own wallets for users, there is no special need to record private keys, but the servers of such exchanges are a target for hackers.
How to Secure Your Cryptocurrency
To protect your wallet from hacking attempts, you should follow several recommendations.
All wallets intended for storing cryptocurrencies are divided into hot and cold. The first are constantly connected to the Internet and are considered the most vulnerable. The second (a typical example is hardware wallets) are not connected to the World Wide Web most of the time, so they can only be hacked when they are used for transactions.
But hardware wallets are not a panacea either: they can be banally lost, over time they may simply stop being read, when such a flash drive is inserted into a computer, it automatically passes into the category of hot wallets.
In short, there are no absolutely secure ways to store private keys for a crypto wallet for a long time. But in the same way, you can become a victim of an attack in order to gain access to your regular bank accounts or payment cards. If you take a responsible approach in such things, then the risk of theft, whether it is cryptocurrency or fiat money, is minimal.
Currently, there are many programs and applications designed to increase the security of crypto wallets, but in any case, you should follow a few simple rules:
- try not to keep private keys on a device that is constantly connected to the Internet (smartphone, laptop, PC);
- if it is possible to use a cold wallet, then use it;
- you should also be wary of storing keys on third-party resources such as crypto exchanges, if you do not agree with the possible risks of their theft;
- when using a cold wallet, if you need to make a transaction, transfer the keys to a hot wallet, but immediately delete them after the transaction is completed;
- a hardware or paper wallet should be stored in a safe place with controlled humidity. Check them from time to time for degradation, if there are any signs, immediately replace the storage device with a new one.
And the most important rule: never share private keys with others, even if they are people close to you.
Top of The High-Profile Hacks
Almost all of them are connected with exchanges, which is quite understandable.
One of the very first sensational attempts to crack bitcoin is considered to be the attack of the Japanese crypto exchange Mt. Gox in 2014, as a result of which 850000 BTC was “stolen” in the amount of about $450 million (at the then exchange rate). As a result, the exchange declared bankruptcy. Some of the stolen funds were recovered.
In the summer of 2016, hackers broke into the Bitfinex crypto exchange based in Hong Kong. 119,756 BTC ($65 million) was stolen, but other cryptocurrencies and fiat assets were not affected. The bitcoin exchange rate fell by 18%, which led to a decrease in market capitalization by $ 1.5 billion.
The well-known South Korean crypto exchange Bithumb was repeatedly subjected to hacker attacks during 2017-2019. BTC, XRP, ETH, BCH, EOS and other tokens worth $58 million were stolen.
Of course, all these cases have been thoroughly analyzed in order to eliminate vulnerabilities. And this is what DecimalChain platform is working at, and this regards crypto Decimal places because the company aims at maximum security of its users`s funds. But hackers do stand still, so cases of theft of cryptocurrencies will take place in the future. However, as well as the theft of fiat money.
Is it worth avoiding the market if you are afraid of losing money? It is obvious that security in the crypto industry is still higher than when using fiat money, which can be stolen simply from your pocket or purse. As for the well-known cryptocurrency platforms, they are reliably protected. For example, the reliability of the Decimalchain blockchain, specializing in the use of decentralized applications, is evidenced by the fact that its native token decimal has not been stolen even once. Decimal coin is considered to be one of the most reliable, and crypto decimal places are securely protected from all sorts of attacks. One can hardly find something more secure in the world of blockchain than crypto decimal places and the DecimalChain ecosystem as a whole. Of course, we can talk about a direct relationship between the popularity of the cryptocurrency and the number of attempts to hack it: the capitalization of the Decimal coin is orders of magnitude lower than that of ether or bitcoin, and yet it makes sense to minimize any risks by choosing token Decimal or a similar cryptocurrency that is in the TOP 100.