Security

Is Bitcoin Safe and Secure?

Post By
Nuo

By and large, cryptocurrency is a sound technology that can be used safely, even more so than traditional bank accounts (which are also vulnerable to hacking).

A traditional payment system (like a credit card) has numerous vulnerabilities. Anyone who gains access to the credit card number can repeatedly charge for services. This means that an end to end security scheme must be implemented for transport security and for information stored (on paper or in databases). Compromise of a user's account exposes the user to fraudulent payments and the compromise of account data can result in identity theft. Organizations that maintain this information carry a heavy responsibility to keep this data secure and must provide measures for access control to prevent authorized disclosure of the information. Under this type of system, users are at risk of a mass data exposure if a database is not properly protected. Many websites have dubious security models which can easily expose user data to theft.

As Bitcoin is a decentralized system, it pushes some security responsibility and control to the end-users, especially responsibility for securing private keys that are used to validate transactions. Bitcoin security does not rely on access control. Transactions can be conducted over a public network, cannot be forged, and cannot be modified once validated by several nodes on the blockchain. Transaction data cannot be used to resend payments, as the transaction is only good for those recipients who can unlock the transaction by having the proper key.

Transaction validation of the Bitcoin network is based on a Proof of Work scheme, where after several validations; it becomes too computationally expensive to conduct consensus attacks against the blockchain. Essentially, the blockchain is a public ledger, which is completely decentralized. Miners around the world compete to solve a computationally expensive problem to mine the next block that will be entered into the blockchain. The miner's work is what secures the blockchain. In order to benefit from Bitcoin’s security model, users must secure their individual keys and keep transactions within the blockchain.

Transactions appear to the public to be “anonymous”; however most Bitcoin users will have to convert BTC to other currencies sometime. This means that your wallet where the funds were initially deposited can be identified against the account used to deposit the funds(credit card, bank account, etc). All transactions after that injection point are exposed on this public ledger, so anybody with some basic know how can track where the money moved from there.

By safe… possibly you mean.. is it a safe investment?

The real innovation is less the creation of a new form of currency, but the development of the blockchain technology. This impressive innovation is a sophisticated solution to the Byzantine General’s problem, which is a primary problem in reaching consensus in distributed systems. This innovation opens a whole host of new capabilities to create large-scale distributed systems that can reach consensus in a decentralized fashion. Many applications that currently rely on a centralized authority could be replaced by blockchain technology, making blockchain investment an interesting prospect.

Bitcoin price volatility has been an issue in the past. Many factors influence this value (scarcity of the supply, speculation, and bad press releases). Clearly, volatility is a poor quality in a currency, but it can present some interesting opportunities as an investment vehicle (buying low, selling high, etc). Whether Bitcoin proves to be a good investment will likely be determined by how well the blockchain continues to scale with more transactions and how the Bitcoin community continues to adapt to changing conditions. Bitcoin will likely not replace modern currencies as produced by nation states, but it will likely find niche uses where conventional currencies and payment systems do not serve well (micropayments, online services… etc

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