Is Bitcoin Secure?
Whenever people find out that I’m into virtual currency, they almost always ask the same question: “Is Bitcoin secure?” I usually tell them “yes” to set their minds at ease, but the actual truth is a little more complicated.
When Bitcoin transactions are being created and processed in block chains, they are absolutely safe. At this stage, think of it like money being printed by the U.S. Mint or a similar facility in another country. When’s the last time you heard about thieves breaking into such a place and getting away with millions of dollars (outside of the movies)?
Once bitcoins end up in the possession of regular users, however, that’s when things can go wrong. Computers can be hacked and storage services can be broken into. This is the equivalent of money sitting in a bank or in your wallet. While it’s usually safe, armed robbers and pickpockets can sometimes relieve unlucky individuals of their hard-earned cash. But unlike the currency in a bank, bitcoins are not insured.
Examples of Bitcoin Hacks
If we’re going to discuss the security of Bitcoin, it helps to look at some real-world examples of hacking. The following are some of the most famous cases to take place. Sadly, they won’t be the last.
- The First Hack – A June of 2011, a bitcoin user known as Allinvain gained the dubious distinction of becoming the first person to suffer a major loss of bitcoins due to a hack. They were using a computer powered by Windows software, and the thieves were able to break into their PC and steal 25,000 bitcoins. Adjusted for inflation, that amount would now be worth more than $10 million.
- Assault on Mt Gox – At one point, the now-defunct Bitcoin exchange known as Mt. Gox was handling 70% of all transactions involving the virtual currency. This made them a prime target for hackers, and the first major attack came in 2011 when a thief broke into an account on their site and made a huge sale of coins. This caused the value of the currency to go into a freefall, although the actual hacker was thwarted from making a profit by the site’s daily withdrawal limit. In February of 2014, the site suspended trading and shut down their website. A leaked internal memo attributed their downfall to a long-undetected theft that had resulted in 744,408 bitcoins being stolen.
- Canadian Bitcoins – Later in 2014, a North American bitcoin exchange known as Canadian Bitcoins lost around $100,000 in virtual currency when a hacker tricked a customer service rep into allowing him to bypass the site’s server security.
- Picostocks – One of the first Bitcoin stock markets was hacked in November of 2013, and the thieves made off with 6,000 coins (worth $6 million at the time).
- Inputs.io – This online wallet service was driven out of business in 2013 when a pair of hacks robbed them of 4,100 bitcoins. The value of the currency was $1 million at the time of the hack, but that number had risen to $2.5 million by 2015.
Making Your Bitcoins More Secure
If you want to take every possible precaution to protect your bitcoins, here are some suggestions from leading online security experts:
- Pick a Strong Password – The best password should be at least 16 characters long and comprised of letters, numbers, and punctuation marks.
- Update Software – By using current Bitcoin software, you can make sure that you’ve got the latest security fixes.
- Keep Savings Offline – Also known as “cold storage,” this involves keeping your bitcoins in a location that’s not connected to a network. When combined with encryptions and backups, this method gives you the highest possible level of security.
- Create a Wallet Backup – This protects against human error as well as the potential loss or theft of your laptop.
- Beware of Storage Sites – While keeping your bitcoins in a third-party location may be convenient, such sites are also prime targets for hackers. If you decide to do it anyway, I suggest careful research before trusting your currency to someone else.
- Keep Your Wallet Light – You probably don’t walk around with thousands of dollars in your wallet, and the same logic applies to Bitcoin. Only keep what you need on your server or computer and leave the rest in a more secure location.
The question of whether or not Bitcoin is secure is a complicated one. While the virtual currency has a perfect record when it comes to preventing hacks of its block chains, currency is vulnerable to theft once it’s been transferred to a user and stored. While almost nothing on Internet is hack-proof, you can give yourself peace of mind simply by following some basic security procedures on a regular basis.