The cryptocurrency space is a relatively young financial market, offering great opportunities for profit to those willing to learn and seriously engage in this craft. However, digital assets also carry significant risks, some of which are related to security threats.
In this comprehensive guide, we will explore the issue of cyber threats in the cryptocurrency space using Bitcoin as an example. We’ll also attempt to answer the question: Can Bitcoin be hacked?
Introduction to Bitcoin Security
How Bitcoin’s Blockchain Works
Bitcoin (BTC) is the first and most well-known cryptocurrency. BTC entered the market in 2009 when the mysterious developer of the coin, known under the pseudonym Satoshi Nakamoto, created the first block in the cryptocurrency network. This block is also called the genesis block.
The cryptocurrency operates on a blockchain — a decentralised network distributed across hundreds of thousands of computers worldwide. To learn more about blockchain technology, check out our detailed review.
Here's how the process works:
1. Mary sends one bitcoin to John. A transaction is made.
2. This transaction is broadcast to the network. Every computer connected to the cryptocurrency network receives a copy of this transaction.
3. Network participants verify this transaction. This task is carried out by special computers called miners. We'll talk a bit more about them later.
4. The transaction is added to a block. All verified transactions are grouped into blocks.
5. The block is added to the blockchain. The new block is linked to the previous one, forming a continuous chain of data, which is called the blockchain.
The Role of Cryptography in Bitcoin Security
When discussing Bitcoin, we cannot overlook the fundamental element — cryptography. In simple terms, cryptography is a method of protecting information by encrypting the original message into a secret code or cipher.
It is cryptography that ensures security in Bitcoin. It encrypts all transactions in the blockchain, making them secure. Once encrypted, transactions are very difficult (practically impossible) to counterfeit or hack.
Here’s how it works:
- The sender of the transaction uses their private key to create a unique digital signature.
- The recipient of the transaction verifies this signature using the sender's public key.
- Both parties confirm that the transaction has reached its intended destination and has not been tampered with.
This process makes Bitcoin transactions secure and tamper-proof. Hooray!
Common Bitcoin Hacking Concerns
51% Attack and Its Implications
Almost every project in the cryptocurrency market is built on the principle of decentralisation. However, like any technology, blockchain has its flaws. The most well-known of these is the 51% attack.
A 51% attack occurs when an attacker gains control of more than 50% of the network's computational power. In this scenario, they could potentially rewrite the blockchain, reverse transactions, and execute double-spending. Imagine if someone were to acquire 51% of the shares in a company. They would automatically gain the majority of votes and could influence all management decisions. It's the same principle here.
In theory, any decentralised project is vulnerable to a 51% attack. However, in practice, carrying out such an attack requires enormous costs and resources. Projects with a small market capitalisation are more susceptible to this type of attack. However, the more funds a project has and the larger its community, the harder (and more expensive) it becomes to launch such attacks.
When it comes to the 51% attack on Bitcoin, the cryptocurrency is protected from this threat by its consensus algorithms. BTC operates on the Proof of Work (PoW) consensus mechanism, which makes mining the central process within the coin's ecosystem.
Mining is how new bitcoins are created, and it requires significant computational power. To attack the network, an attacker would need to outpace the computational power of thousands of independent miners, which is very expensive and difficult. Therefore, while the vulnerability to a 51% attack exists with Bitcoin, it is considered highly unlikely.
Private Key Vulnerabilities
We’ve already begun to explore the issue of private keys. A private key is a special code generated to protect your wallet. Typically, a private key is a sequence of 12 random words in English. If someone gains access to your private key, they will have full control over your wallet.
There are various ways that this key can be compromised. For example, attackers might gain access to this information through malware. This would work if you store your private keys on a computer or phone that is always connected to the internet. Another method is phishing attacks and social engineering. In this case, scammers trick you into providing the information by using clever schemes, misleading you into either giving away your password or clicking on a phishing link. However, the threat can also come from within — if you forget or lose your key, you won’t be able to recover it without a backup. In such a case, your bitcoins will remain in the wallet, but you will likely never be able to access them again.
This is why the importance of private key security cannot be underestimated. We’ll discuss safe ways to store these keys a little later on.
Double-Spending Attacks
Each transaction is generally unique and is strictly recorded by miners on the blockchain network. However, sometimes there are cases where, due to imperfections in the network’s code, a user could potentially spend the same coins twice. This vulnerability is called double spending. In other words, it's when a user attempts to spend the same bitcoins more than once.
This can happen if the transaction has not yet been confirmed, and the user tries to conduct a second transaction before the first one is recorded on the blockchain. Under normal circumstances, Bitcoin’s network prevents double spending by requiring transaction confirmation by miners. However, in the event of a network failure or a 51% attack, Bitcoin double-spending could occur.
While Bitcoin's security measures make double-spending highly unlikely, it remains a risk, particularly during network congestion or if an attacker tries to control a significant portion of the computational power.
Real-Life Examples of Bitcoin Hacks
High-Profile Bitcoin Hacks and Their Impact
One of the largest hacks in history was the 2014 incident involving Mt. Gox, which, at the time, was the world’s largest cryptocurrency exchange. Ten years ago, the platform was hacked, and a staggering 850,000 bitcoins were stolen. This hack became a major blow to the reputation of the cryptocurrency industry and exposed the risks associated with storing Bitcoin on centralised exchanges. Mt. Gox is still in the process of compensating its creditors to this day. You can read the full story of the exchange’s collapse and its ongoing legal battles in our special review.
Another dark chapter in the history of the cryptocurrency market is the 2016 attack on Bitfinex. Hackers managed to steal around 120,000 bitcoins from the exchange. As with the Mt. Gox incident, the issue wasn’t Bitcoin’s blockchain security, but rather the inadequate security system of the exchange itself.
Unfortunately, these two incidents are just the tip of the iceberg when it comes to hacking attempts in the crypto space. The cryptocurrency industry has experienced many more breaches over the years. If you are interested in this topic, you can check out an overview of the most high-profile crypto hacks here.
Lessons Learned from Past Incidents
Both of these stories shed much-needed light on the risks of Bitcoin hacking and the broader issue of digital currency security. One of the key lessons learned was the inadequacy of security systems on centralised cryptocurrency exchanges (CEX). As a result, many users began opting to store their assets independently in personal wallets, which contributed to the growth of more decentralised networks.
Exchanges themselves didn’t remain passive. These high-profile scandals ultimately led to greater transparency within the sector. For example, many CEX platforms adopted the Proof of Reserves (PoR) model. This means they now regularly disclose information to the public to prove they have enough funds to cover all client deposits.
Fun Fact! The final trigger for the widespread adoption of PoR was the collapse of the FTX exchange and its affiliated investment firm, Alameda Research. To learn more about what exactly happened and how this bankruptcy affected the entire industry, check out our in-depth review.
How to Protect Your Bitcoin Holdings
Importance of Private Key Security
We’ve spent quite a bit of time discussing the importance of Bitcoin private key security, but it’s worth repeating the key point: if someone gains access to your private key, they gain full control over your funds. This is why the security of your private keys is, essentially, the security of your savings.
What a cold wallet looks like. Source
Every crypto investor should think ahead about where and how they will store their private keys. One of the most popular options is cold wallets for digital assets. These devices are not connected to the internet, making them inaccessible to hackers and scammers. It’s also important to create backup copies of your private keys and store them in secure locations.
Using Multi-Signature Wallets
Multi-signature wallets are an advanced option for handling private keys, offering an extra layer of security. To perform a transaction from such a wallet, multiple signatures are required—at least two. This makes it much harder to steal or hack the wallet.
For instance, you can set up the wallet so that not only your private key is needed to make a transfer, but also a confirmation from other devices or keys. This means that even if one of the keys is compromised, your funds will still remain secure.
Safe Practices for Bitcoin Storage
Caring for your private keys and using multi-signature wallets aren’t the only ways to protect yourself from the numerous threats in the public ledger. Here are a few universal tips that can help enhance your Bitcoin security:
1. Use complex and unique passwords. Never reuse the same password, even if it seems very strong, and never store passwords online or on devices with constant internet access. It's better to write all passwords down on paper and hide it in a secure location known only to you. Even better—make several copies and store them in different secure places.
2. Enable two-factor authentication (2FA) wherever possible. Be cautious of phishing attacks and avoid clicking on suspicious links or entering your details on dubious websites.
3. Store large sums in cold wallets. Unfortunately, no online wallet is fully immune to hacks. If your goal is long-term storage of BTC, a hardware crypto wallet is ideal. It provides the highest level of security for your assets. You can find a list of the top 5 best crypto wallets for 2024-2025 in this article.
Conclusion
Despite highly effective cryptographic security measures, Bitcoin, as the leading cryptocurrency, does have its vulnerabilities and cannot be fully protected from attacks. However, the level of Bitcoin network security continues to improve each year, alongside the development of blockchain technology, new crypto innovations, and growing user awareness.
By following simple security rules, such as protecting your private keys and using secure wallets, you can safeguard your Bitcoin holdings in the long term.
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
