Just how safe is Bitcoin?

Leonard McAuliffe, director with PwC Cyber Practice, looks at Bitcoin's strengths and weaknesses.

Using Bitcoin, a person can buy almost anything, from computers to houses to coffee. Bitcoin wallets are used to send transactions to and from a user. Wallets have both a public key, which anyone can see (quite similar to an email address), and a private key (similar to a password). Without this private key, Bitcoin cannot be accessed.

But how secure is Bitcoin? The Bitcoin protocol itself is secure due to blockchain technology. However, the same cannot be said for the threats posed to accompanying sites and services.

There are ways in which Bitcoin can be hacked and stolen. The majority of these ways come down to negligence or error — for example, exposing your private key or using an untrustworthy third party wallet provider.

Although Bitcoin is a digital currency, it is not recommended to store the Bitcoin online as this poses a security threat. An example is the Inputs.io hack.

Inputs.io offered a service that allowed Bitcoin users to store their Bitcoin in provided online wallets. These wallets were eventually compromised on two separate occasions by means of a social engineering attack. In the end 4,100 Bitcoin was stolen — the equivalent of $120m (€102m).

Just last week, nearly $64m in Bitcoin had been stolen by hackers who broke into Slovenian-based Bitcoin mining marketplace NiceHash. This was a highly professional, social engineering hack which resulted in 4,700 Bitcoin being stolen.

Once again this is proving that online security is a massive concern for cryptocurrencies as digital wallets become increasingly popular targets for hackers.

Double spending is another threat that faces Bitcoin. It refers to the possibility of Bitcoin transactions being copied and reused a second time by attackers.

Blockchain is used as the platform to monitor this and prevent it from happening. If an individual or a group of individuals owns more than 50% of the computing power within the Bitcoin network, the network is opened up to the possibility of a 51% attack.

This percentage in computing power can be used to split the main transaction blockchain and commit fraud. It is argued that a 51% attack is not beneficial to the attacker seeing as it can be easily identified and not economically beneficial to them. However, it is still a vulnerability associated with bitcoin and one that needs to be taken seriously.

In theory, the Bitcoin algorithm can be hacked, but this is not feasible with current technologies as well as not being worth it when looking at cost versus reward.

Researchers have claimed that by 2027, quantum computers may be able to hack private keys using public keys. Researchers claim the resulting threat posed to the bitcoin algorithm is due to its reliance on public/private keys. Bitcoin will need to be further developed to mitigate against this.

In conclusion, Bitcoin and blockchain are currently secure, but there are potential vulnerabilities in the sites and services that deal with Bitcoin, such as wallets and exchanges. Most breaches are due to negligence while trading bitcoBitcoinin, not the bitcoin protocol itself.

As technologies and computer power advance, such as quantum computing, Bitcoin must adapt to mitigate the risk.

Only time will tell if Bitcoin will be able to survive these potential vulnerabilities and future risks.

As it continues to develop and become an integral part of the financial system, security has to be a key focus for anyone dealing with Bitcoin and other cryptocurrencies.