Mar 21, 2024

Can Bitcoin Be Hacked? Security Explained

Can Bitcoin be hacked? Understand the risks of 51% attacks and Bitcoin's security.

Can Bitcoin Be Hacked? Security Explained

As the world’s first digital currency and decentralized monetary system, it’s reasonable to expect a degree of uncertainty around Bitcoin. Questions about Bitcoin hacking are common, and even though it has never in its history been hacked, nervousness remains among the public about its level of security. However, these fears are largely unwarranted. Bitcoin’s impeccable security track record is unlikely to change.

How Bitcoin Stays Secure: Cryptography Explained

There are two main cryptographic algorithms that secure Bitcoin. The ECDSA digital signature algorithm protects wallets from being accessed by anyone other than the owner.

Only people with the public and private keys can access the funds inside. The ECDSA algorithm makes brute forcing these keys essentially impossible with current technology.

The second is the SHA-256 hash function. This is what miners use to mine blocks. Without getting into a technical explanation of how it works, it’s the SHA-256 function that enables Proof-of-Work.

ECDSA (Elliptic Curve Digital Signature Algorithm)

Protects Bitcoin wallets by ensuring only the owner with the correct private key can access and authorize transactions.

SHA-256 (Secure Hash Algorithm 256-bit)

Used by Bitcoin miners in the Proof-of-Work process. Ensures block integrity and that miners follow the network's rules.

This ensures that blocks are mined honestly and over a particular length of time (averaging 10 minutes per block).

Neither of these cryptographic algorithms has ever been broken, and with current technology, it’s borderline impossible to do so.

Could Quantum Computers Hack Bitcoin?

Speculations about the potential threat posed by quantum computing have surfaced in recent years, raising questions about potential Bitcoin vulnerabilities in the future. However, it is essential to recognize that quantum computing is still in its nascent stages and has a long way to go before posing a tangible risk to Bitcoin.

Currently, quantum computers are many times too small for the number of qubits (quantum bits) needed to hack these algorithms.

Furthermore, any advancements in quantum computing would also jeopardize the security of conventional cryptographic systems, raising broader concerns about blockchain security and the protection of digital assets beyond the realm of Bitcoin.

If bad actors ever turn quantum computers against the world, we should be far more concerned about the security of nuclear codes than about the Bitcoin network.

Most of the traditional financial world also operates with security protocols far easier to hack than Bitcoin. In fact, the traditional financial world is regularly hacked with technology that is currently available.

This essentially means that the advancements in computing technology that would endanger the Bitcoin network would make the security protocols of the traditional financial system completely and utterly obsolete.

What Is The Danger Of a 51% Attack On Bitcoin?

A 51% attack is when a bad actor controls 51% or more of the hash rate of the Bitcoin network, allowing it to control which blocks get proposed and confirmed.

Theoretically, an entity with 51% control could even change the order of past transactions by creating a longer chain alongside the current chain, and then introducing that after spending bitcoin.

Double-Spending: The Core Threat of a 51% Attack

Since the network will always accept the longest chain, the attacker could introduce a longer chain that doesn’t contain their previous transaction, allowing them to spend the same bitcoin twice.

This would essentially amount to counterfeiting bitcoin.

What Would a 51% Attack Cost?

There are two ways to achieve 51% control over the network.

The first would involve buying up 51% of the current hashrate. That would be incredibly difficult because the mining power is highly decentralized.

No mining pool currently controls 51% or more of the mining power, and individual miners can withdraw from these pools at any time if they suspect malicious intentions.

The other would be to add enough mining equipment, like Bitcoin mining hardware of their own, to double the total hashrate of the network plus 1%.

Both of these methods would involve buying up literally tonnes of equipment and huge amounts of electricity.

It would also have to spread across the globe since doing so in one place would cause the local price of electricity to become prohibitively expensive, and that’s assuming there’s any one place that could actually produce that much electricity—spoiler: there isn’t.

What Would Be The Payoff Of a 51% Attack?

Since a 51% attack could only control which transactions get made and in what order, this form of attack wouldn’t endanger anyone’s holdings. This is not a method of attack that could actually access anyone’s wallet.

If there were a 51% attack, the attacker(s) could only gain a very small amount of bitcoin before people were made aware and transactions temporarily ceased.

The Fallout: Loss of Trust and Bitcoin's Value

Also, a successful 51% would destroy trust in the security of the Bitcoin network, causing the price of bitcoin to fall dramatically.

As a result, whatever bitcoin they did manage to get would become immediately worthless.

Due to this incentive structure, there’s no possible way a 51% attack would ever be a worthwhile decision.

The only possible reason to conduct such an attack would be to destroy the Bitcoin network, which would probably only be achievable temporarily until security measures were updated.

It would take a Hollywood movie supervillain, with all the resources of the globe, to even attempt this kind of attack.

In Conclusion

The Bitcoin network has never been hacked, and an understanding of the cryptographic security protocols and incentive structures in place reveals why Bitcoin’s security is so robust..

Not only is the network secured by some of the most advanced algorithms available, but the lack of any potential payoff of a 51% attack makes this form of assault unlikely to the point of ridiculousness.

Although advances in quantum computing could pose a risk to Bitcoin wallets, this is a long way off from being a reality, and the rest of the world and all its security protocols will be in danger long before the Bitcoin network is.

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