Can Bitcoin Be Hacked? | River Financial

bitcoin security

As a new phenomenon, bitcoin faces a lot of skepticism. As a fully digital method of storing wealth that is not backed by fdic insurance or traditional institutions, users may also be concerned about vulnerabilities in cryptography or blockchain technology. however, the bitcoin network has proven to be robust against failures and attacks. the blockchain itself is economically and technically impervious to corruption.

bitcoin security concerns

bitcoin is a relatively new technology, but in its twelve years of existence, bitcoin has proven to be the world’s most secure digital system and the most reliable monetary system ever invented. the bitcoin block chain has never been hacked and counterfeit currency has never been used on the network.

Reading: Has bitcoin been hacked

As with any software, bitcoin is not perfect or infallible. minor bugs appear from time to time, and there are theoretical security concerns that could threaten bitcoin today or in the future. this article will examine these concerns.

bitcoin user security vs. bitcoin network security

It is important to differentiate between the security concerns facing bitcoin users and those facing the bitcoin network and technology. bitcoin users should carefully protect their private keys, passwords, and other sensitive information from attackers or loss.

➤ learn more about individual bitcoin security.

However, bitcoin network security concerns include the security of the underlying cryptography, the robustness of the peer-to-peer network, and the hash rate of bitcoin miners.

how secure is the bitcoin block chain?

Bitcoin is both a blockchain database and a network of computers, called nodes, that communicate to build and update the database. the network includes hundreds of thousands of computers owned by an equally large and distributed number of people. anyone is able to join this network without qualification.

The database maintained by this open system has never been hacked. this is due to the fact that hacking one computer’s database is not enough to corrupt the database of all the others. in fact, the other computers on the network will automatically alert the compromised user that their database is corrupted and either help them fix the error or remove them from the network.

Even more impressive is the fact that a single computer with the valid blockchain can fix an infinite number of computers with invalid or outdated chains. the network does not follow the opinion of the majority, but the objectively most valid chain.

double spending and counterfeit bitcoin

One of the main features of bitcoin is the tight control and transparency of the money supply and the ability to prevent double spending, where the same money is spent twice or a transaction is reversed after being deemed final. these features are enforced by bitcoin nodes, and if any of these rules were to be violated, the reputation and trustworthiness of bitcoin would be compromised.

➤ Learn more about how bitcoin solves the problem of double spending.

51% attacks

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One of the most popular bitcoin security concerns, called the 51% attack, could cause double spending. a 51% attack is an attempt by a bitcoin miner or group of miners to replace or alter previous bitcoin blocks. By replacing one or more blocks, the attacker could effectively invalidate transactions that were previously settled and steal bitcoins.

As the name suggests, to guarantee a 51% successful attack, a malicious actor would need to control at least 51% of the total computing power, called the hash rate, of the bitcoin network. this would equate to more computing power than all the other members of the network combined. As such, 51% attacks require an enormous amount of money, energy, and specialized hardware. Satoshi Nakamoto, the founder of bitcoin, described the mechanics and mathematics of a 51% attack on page 8 of the bitcoin whitepaper.

practical difficulty of 51% attacks

As the bitcoin network has grown and the price has increased, so has the hash rate of bitcoin miners. This trend has made 51% of attacks increasingly difficult to execute, making bitcoin more secure. As the price of bitcoin continues to rise, the hash rate and security of bitcoin will also continue to rise.

bitcoin incentive model

In addition to the high cost of a 51% attack, bitcoin offers additional incentives for miners to be honest. even if a malicious miner were to successfully execute an attack, it would crash the price of bitcoin, devaluing the bitcoin it just stole. the attacker’s bitcoin mining equipment, called asics, which cannot be reused and is expensive, would also be rendered useless. These economic incentives, along with bitcoin’s core design, have prevented a 51% attack from succeeding against bitcoin.

how secure is the bitcoin peer-to-peer network?

Bitcoin’s peer-to-peer network is completely open and decentralized. Tens of thousands of nodes around the world communicate with each other to share transactions and blocks around the clock. this network allows anyone to join and view the bitcoin block chain.

Bitcoin nodes enforce the rules of the network, including its monetary policy and its resistance to double spending. If a significant portion of bitcoin nodes were to go offline, a malicious actor could disrupt the transmission of blocks and possibly change network rules, to change monetary policy, for example.

➤ learn more about the 21 million bitcoin hard cap.

denial of service attacks

For this reason, the security of bitcoin nodes is paramount to the security of the network as a whole. when bitcoin developers design new types of transactions or introduce new features, they pay close attention to whether these features can make nodes vulnerable to denial-of-service attacks (dos) that could take them offline.

this explains why the bitcoin script is not complete. if the script enabled loops, an attacker could create a transaction with an infinite loop, exhausting the resources of nodes trying to validate it. this would lock down the nodes and remove them from the network.

bitcoin is designed to prevent these types of attacks, and several proposed updates, such as dandelion and erlay, are working to improve the security and privacy of bitcoin nodes.

can bitcoin survive without the internet?

Bitcoin operates primarily over the internet, like most other digital services. hypothetically, society could be unable to access the internet, either due to massive technological failures or government interference, as is regularly the case in authoritarian countries. In such a case, almost all digital services, including the legacy financial system, would also fall into chaos, not just bitcoin.

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If this were to happen, most miners and nodes on the bitcoin network would lose communication with each other, and the network would risk not being able to produce new blocks and transmit new transactions. however, the existing state of the blockchain would remain perfectly intact, as each node would continue to store whatever blocks they had before the internet was lost.

When the internet connection was restored or another solution was found, the nodes and miners were able to resume streaming new blocks as before. even if the blockchain had broken up in the interim, bitcoin nodes have the ability to reconcile and agree on the most objectively valid blockchain to follow.

bitcoin alternatives to the internet

the bitcoin network also operates on networks other than the internet. bitcoin blocks are transmitted via radio, mesh network, and even satellite. developers are working to improve these solutions, making them easier to use and thus making bitcoin more robust and less dependent on internet connectivity.

how secure is bitcoin cryptography?

Cryptography is what allows bitcoins to be transferred from one party to another without trust. Specifically, bitcoin uses a digital signature algorithm called ecdsa, which has remained intact for several decades. however, there is always a chance that this scheme will be cracked, allowing an attacker to forge signatures and spend bitcoins that do not belong to them.

➤ learn more about how bitcoin uses cryptography.

another security-critical cryptographic algorithm is the sha-256 hash function, which is the one-way random function behind the bitcoin proof-of-work algorithm, lightning network htlcs and more. if a method were developed to reverse sha-256 or break its randomness, it would allow an attacker to potentially steal funds on the lightning network and mine significantly faster than miners without such knowledge.

the result of ecdsa or sha-256 being compromised by a malicious actor would be disastrous for bitcoin. however, these algorithms have persisted for many years and are used by many systems outside of bitcoin. if bitcoin is compromised, many other systems we trust will also be compromised.

If any of the algorithms were found to be insecure by a benign actor, the bitcoin network could move to a more secure set of cryptographic algorithms and still function, although this would be very cumbersome for existing users.

quantum computers

A popular theoretical vulnerability of bitcoin cryptography involves the implementation of a practical quantum computer. quantum computers perform calculations at the subatomic level and achieve extraordinary efficiency and speed. while scientists have theorized about its power for several years, a practical implementation has yet to be invented.

If a single entity had exclusive access to a quantum computer and chose to mine bitcoin, it would likely dominate the mining industry and have the ability to execute a 51% attack on bitcoin. alternatively, a quantum computer could brute force the private keys of the richest bitcoin addresses and steal that bitcoin. in either case, trust in the bitcoin network would be undermined.

The quantum computer argument against bitcoin seems valid until we consider the rest of the economy. If a single malicious entity produced a practical quantum computer, it could hack almost any system, not just bitcoin. The entire financial system would be at risk in this scenario.

In fact, bitcoin would be one of the most secure systems, considering that it uses a much higher level of entropy than a bank account or a credit card. a credit card uses 16 digits and a 3-digit security code, which produces an entropy of 10^19, while bitcoin private keys use an entropy of 2^128 or approximately 10^38.

See also: Track your brokerage cash account alongside your investments


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