By The crypto sector is increasing in activity, with hundreds of initial coin offerings, new cryptocurrency launches and startups based on digital assets. As a result, there is a growing need to ramp up regulations in order to keep pace with the increasing number of developments and innovations within the industry. This unequal balance between rampant growth and regulatory changes has contributed to volatility and confusion within the marketplace, heightening the potential for investors to fall prey to fraudulent and illegal activities.
With the rise in public interest, individuals and institutional investors are either directly investing or exploring the idea of investing in cryptocurrencies. A major issue that continues to inhibit investors is the question of cryptocurrency security, whether it can be hacked, and, if so, how best to mitigate this risk.
Hacks as Part of the Territory
As with the introduction of any new technology, there will be a tenet of basic human nature that dictates the need for the boundaries of that technology to be tested. The same holds true for cryptocurrency, which has attracted the interest of criminal elements due to the monetary value, autonomous nature and unregulated aspect of crypto.
According to CipherTrace’s most recent report, over $1 billion in cryptocurrency will be stolen in 2018, approximately 3.5 higher than in 2017. The largest hack of 2018 was the theft of $530 million worth of tokens, which were stolen in Japan from the Coincheck exchange. A blockchain hack also saw Bitcoin Gold lose $18 million this year as hackers engineered an attack on the blockchain network by using rented to computers to gain more than 51% of the network hash rate.
This year has seen cryptocurrencies and exchanges around the world, including Bithumb, Bitgrail, Bancor, Geth, Coinrail, Bitcoin Gold and Zaif, fall prey to online hacks. Common hacks seem to include breaching online wallets, taking advantage of insecurely configured clients and unlocked ports, exploiting inadequate exchange controls and confidence scams.
Security Remains A Fundamental Issue Requiring Ongoing Development
Bitcoin, the most prominent cryptocurrency, was launched in 2009 as a decentralized digital currency with the implied objective that it would not be overseen, regulated or administered by any single body or government. As a result, security has been a fundamental issue since Bitcoin’s inception, impacting on its general acceptance and contributing to its volatility.
Although Bitcoin is difficult to hack, due to the blockchain technology that underscores the cryptocurrency, it is not altogether impossible. As the blockchain rolls out, it is reviewed by other miners, making hacks difficult and unlikely. Despite the fact that Bitcoin itself is difficult to hack, it does not necessarily mean that the cryptocurrency is secure as there are numerous security risks at various stages of the trading process which can more easily be exploited.
Bitcoin is held in wallets and traded through digital exchanges. Both of these components have inherent risks which developers are constantly working to reduce by improving or adding new technology to protect the trade and custody of Bitcoin. For example, two-factor identification enables transactions to be authenticated, however, data breaches by hackers enable them to overcome this security measure.
As cryptocurrency and blockchain technology is still relatively new, this technology is characterized by rapid growth and innovation making it vulnerable to hackers and criminals who wish to capitalize on the security weaknesses before those blind spots can be corrected. Investors should, therefore, be aware of these risks and take precautions to protect themselves.
Have you been hacked before? Do you think crypto will ever be risk-free? Give us your thoughts in the comments below.
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