Beware of Hacking Risks with Bitcoin
April 26, 2019 (Investorideas.com Newswire) One of the main selling points to utilizing "blockchain" technology was security. When it made its foray into the public domain, blockchain technology was touted as "un-hackable, safe, immutable and a paradigm of transparency and security," according to Forbes Magazine. Bitcoin, the popular virtual currency, is predicated on the efficacy of blockchain technology. If a blockchain is in fact hackable, then your Bitcoin account is at serious risk of being hacked as well.
There have in fact been numerous reports of major Bitcoin thefts in recent years. For example, Bitcoin Savings & Trust, a prominent Bitcoin company, was actually a Bernie Madoff-esque pyramid scheme and the owner of the site was charged with stealing $4.5 million in bitcoins. In a similarly disturbing event, the site "MyBitcoin" which allowed individuals to store bitcoins like a bank account, suddenly disappeared without a trace. This means MyBitcoin users lost roughly $1 million worth of bitcoins. And this is just a small sampling of concerning events related to bitcoin currency. Several of the most trusted and well-known Bitcoin companies have been hacked or been linked to troubling theft issues, according to The Verge.
One of the prominent recent examples of a major bitcoin hack involved a giant in the bitcoin industry, Coinbase. It is arguably one of the most popular and frequented bitcoin currency exchange platforms on the internet. For example, according to Crunchbase, Coinbase was valued at $8 billion and had notable investors like tennis star Serena Williams. In 2019, the Coinbase security team discovered that its blockchain and the history of all its transactions, was under attack by a sophisticated hacker, according to the MIT Technology Review. A hacker was able to gain control of more than half of Coinbase's computing power and used it to rewrite the transaction history. Basically, it meant the hacker could use the same cryptocurrency more than once. Reports indicate that the hacker had already "double spent" close to $1.1 million before his nefarious activities were discovered.
No Safety Net with a Bitcoin Hack
A big reason why bitcoin is so risky and exposed to illegal hacking activity is the fact that a transaction is irreversible. If, for example, a hacker was able to access your credit card information, you have the ability to cancel the hacked card and ask your bank to reverse the fraudulent transactions. You do not have that option with bitcoin. Why? Because it is a digital currency. In fact, Nicolas Christin, an assistant research professor at Carnegie Mellon University, described bitcoin simply as "cash" so when it is stolen, "the only way to get it back is by tracking [the thief] down and basically beating [them] up with a lead pipe."
Reports indicate that hackers have stolen roughly $2 billion worth of cryptocurrency since the beginning of 2017, mostly from bitcoin exchanges. The number may actually be much higher since that $2 billion is just what has been publicly reported. The threat to bitcoin owners is multi-faceted as well. Bitcoin exchange platforms have been targeted not just by random, lone hackers. There appear to be sophisticated cybercrime organizations focused on defrauding these platforms and the bitcoin owners who utilize them. For example, Chainalysis, a prominent bitcoin analysis firm, discovered that just two groups, both of which are apparently still active, may have stolen a combined $1 billion from bitcoin exchanges, according to the aforementioned MIT Technology Review article.
How This Impacts You
So, what does this all mean? Well, if you are someone interested in purchasing bitcoin and using it to transact business, you need to go in with your eyes open and understand the serious potential risks associated with bitcoin currency. As Nicolas Christin stated, bitcoin is basically just digital cash and can disappear in the blink of an eye.
A response to the growing risk of blockchain hacks is companies offering "bitcoin theft insurance." There are also companies offering broader "cyber" insurance to help protect not just your bitcoin current, but your entire digital portfolio. Some Bitcoin owners are even attempting to utilize more traditional insurance policies to protect against a digital loss. For example, a Bitcoin holder residing in Ohio filed a claim for $16,000 of stolen Bitcoin under his Homeowner's Policy. This individual cited the IRS' definition of virtual currency as "property" which could potentially trigger the coverage provisions of his homeowner's policy. He is currently litigating the matter in court.
As you can see, there are serious risks associated with Bitcoin so you need to exercise caution and be cognizant of these risks if you plan to utilize the digital currency for any business transaction.
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