26 May The dark side of Cryptocurrencies
Security. Volatility. Mining. Craze. It is bewildering to observe how much people hear about cryptocurrencies nowadays and how little they admit to understand about them. We have already mentioned in one of our recent articles, that alongside 1 percent of people giving cryptocurrencies their ultimate trust and fascination, there are millions of those who view them with scepticism or rejection. Actually, in term of security, the both parties are right. Let us explain why.
The security of cryptocurrency stems from its intrinsic system based on blockchain technology. In case of standard currencies, a transfer is made “secure” thanks to the mediation of a trusted authority – a bank. Cryptocurrencies do not use the help of a third party and two parties willing to participate in a transfer directly interact with each other. What does validate such transfer making sure the sum will not be spent twice while on halt? A timestamped block of code, which is assigned to every transfer and announced to the entire network, which would then be verified by a cryptographic code, too complex to make forgery possible or simply worth it.
This way, simple logic is that in case of standard currency, people rely on a central authority (a bank) to make a transfer and the latter may let them down. Blockchain technology is decentralised and cannot be manipulated unless there is a “51 percent attack” – a highly improbable theoretical scenario where 51 percent of all computing resources needed for blockchain operations will be controlled by one person or group of people. This is why cryptocurrency software is secure and cannot be hacked.
Now, let us look at the other side of the moon and begin with the following assertion people should understand: cryptocurrencies are a reliable system but cryptocurrency-related services are not. The latter have been hacked multiple times and the losses were huge. For example, in 2011, a wallet service MyBitcoin disappeared from the Web together with user’s bitcoins. Hacking of web host Linode cost its users 46,703 bitcoins amounting to more than $200,000 in 2012, the year of the attack. In 2012, another exchange, Bitfloor, suffered an attack worth around $250,000 in stolen Bitcoins, and in 2014, a world’s leading Bitcoin exchange – Mt. Gox – was hacked. The stolen Bitcoins were worth $450 million and would actually be worth $8.5 billion today. The most recent theft of cryptocurrency (NEM) was done by hackers in 2018 and cost owners $534 million. There were also multiple cases when bitcoins were stolen from the PCs of users using their phones and some personal information.
Although hacking of accounts and transfers is part of the banks’ world too, there two important facts about cryptocurrency that change it all:
- Cryptocurrency transfers have an irreversible nature;
- There is no central body to assume responsibility or depositor’s insurance to absorb the loss. This means thatonce your digital money are gone, there are hardly any chances to get them back. And this is what makes cryptocurrencies such a tasty treat for hackers.
You may be still fascinated with cryptocurrency – use it, invest in it, mine it, whatsoever, but, please, be cautious knowing that it has a dark side too. After all, hackers are not likely to stop their attacks on your money, either virtual or digital.
What do you think about cryptocurrencies?
Have you ever invested in crypto or are you thinking about investing in it?
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