Bitcoin has been making headlines for the past two quarters, attracting new investors to its $60,743 all-time high. Amid the waves of its upward trajectory, however, the Bitcoin evolution still attracts the discerning eyes of sceptics who are wary about joining the cryptocurrency bandwagon. And their concerns aren’t necessarily out of context.
While now is supposedly an opportunity to make big bank with the all-new cryptocurrency investment craze, some are concerned over the safety of digital assets. Digital investments technically aren’t new––you don’t get tangible stocks, for example. What’s different this time around is that cryptocurrency is a completely digital store of value. That means no fiat backing and no central institution responsible for losses. One hack, and you could lose everything.
But is it really that easy to hack Bitcoin and other cryptocurrencies, for that matter?
What is a Blockchain?
Before we delve deep into the specifics of hacking into cryptocurrency, it’s important to understand the foundation behind each coin: the blockchain.
A blockchain is a cryptographic network maintained by a database. It’s essentially a public ledger of transactions that store all the data related to a particular coin. The nodes––or the computers responsible for verifying transactions, usually in a process called mining––follow a protocol that dictates how each action should be processed.
This blockchain protocol is akin to a gamemaster that employs cryptography, game theory, and other high-level mathematical problems that maintain security on the network. Because the process is so complex, it’s extremely difficult––almost impossible––for ordinary hackers to tamper with the system. It’s what makes blockchains attractive for governments to use on a national level.
How Can Hackers Breach a Blockchain’s Protocol?
The blockchain protocol is the fort that protects the network’s data from being accessed by unwanted parties. Hacking the system is as simple as breaching this layer of security––but the process is anything but.
For one, powering through the complex mathematical and cryptographic equations will require a large amount of GPU power, especially if a hacker intends to target a popular cryptocurrency like Ethereum. That essentially means shelling out money for the mining power to attempt an attack, which won’t necessarily merit a success.
How Much Does it Cost to Hack Bitcoin?
It will cost over $716,000 per hour to launch a 51% attack on Bitcoin’s blockchain, which will enable hackers to gain over 51% of the mining power in the network’s Proof-of-Work model, increasing their chances of winning BTC. But even then, they would have to bypass Bitcoin’s active hashing power and still gamble for the block reward. Because the scale is so big and the cost too high, it’s almost impossible for this to happen.
On the contrary, smaller blockchains are susceptible to attacks due to the low cost of hacking attempts. In 2020, Bitcoin Gold was victim to a 51% attack that resulted in $70,000 in double-spending. Ethereum Classic has been targeted thrice, each resulting in thousands of dollars lost to hacks. Last year, the cost of launching an attack against Ethereum Classic was only $3,800, compared to Bitcoin’s $513,000, so the choice was a no-brainer.
Does that Mean that Small Blockchains are Unsafe?
Not at all––the safety of each blockchain is still dependent on the measures written on its blockchain protocol.
Ethereum Classic was susceptible to attacks due to outdated security on its network. It has recently implemented the MESS system, which would make it up to 31 times more expensive to hack into its network.
While this essentially mitigates the 51% attack issue––which is targeted to Proof-of-Work ecosystems––it doesn’t address hacking incidents that occur in exchanges.
Why are Cryptocurrency Exchanges Hackable?
Cryptocurrency exchanges mediate millions of transactions a day. Investors rely on these hubs to buy, sell, and hold assets. Anonymity ties the cryptocurrency industry––it’s one of the main selling points that attract investors to coins. But it’s also the cause of many of crypto’s vulnerabilities.
It’s important to know that Bitcoin is stored in private keys, a string of letters and numbers that you can input to access your funds. Your name and identity aren’t attached to these keys, but nobody else can access them––unless you give them away. But putting your coins on an exchange or in a hot wallet (an online wallet) may mean that you lose control over these keys, as you “give” them to the website to hold until you’re ready to withdraw.
By using an exchange or a hot wallet, you essentially rely on the website’s cybersecurity measures to protect your assets. And if the website glitches or isn’t particularly bulletproof, then hackers can get into the system and access your private keys. They can transfer your funds to their personal keys, and you won’t be able to act against it. That’s because the blockchain is anonymous, and transactions are non-refundable.
Are Hackers Going to Dominate All Exchanges?
Absolutely not! The key is to choose your exchange wisely. Here are some tips in picking the right exchange:
- Choose a reputable site with years of industry relevance and professional traders to back it up.
- Choose a site that employs cold storage, which means that assets are stored in hard drives. If coins aren’t floating around the internet, it will be impossible for hackers to get into them!
A favorite among institutional investors is Coinbase, but there are plenty of options on the market that fit the criteria above.
Ultimately, it takes plenty of time, resources, and expertise to hack into Bitcoin, so the chances of it happening is pretty low. However, it’s important to put in the effort to keep yourself safe online by choosing the right exchange and transacting carefully!