Yet as it enters mainstream society, cryptocurrency is still highly susceptible to a number of security issues. Just recently, Japanese cryptocurrency exchange Coincheck announced that attackers had stolen $524 million in digital assets, which would make it the largest cryptocurrency hack in history.
There are a number of security issues with Bitcoin and other cryptocurrencies that continue to make it a risky investment — not to mention the malware that’s intended to take advantage of its rapid growth. Let’s review some of the most important security threats associated with Bitcoin and other cryptocurrencies.
One of the greatest selling points of cryptocurrency is that ownership is completely anonymous. Two people can exchange Bitcoins, for example, without knowing (or being able to know) each other’s identity. All that’s required for a cryptocurrency transaction is an address of alphanumeric characters that represents a digital “wallet.”
This anonymity has made Bitcoin the currency of choice among internet criminals, such as users of the Silk Road marketplace, a decentralized platform for selling drugs, guns and other illicit items. Bitcoin was so popular for Silk Road transactions that it lost one-quarter of its value when the Silk Road website was shut down in 2013.
More recently, cyber criminals have taken advantage of Bitcoin’s user anonymity to receive payments from “ransomware” attacks. Ransomware is malware that locks down the host system and requires users to pay a ransom before regaining access to their files.
Recent years have seen a surge in ransomware attacks. The number of ransomware attacks spiked from 3.8 million in 2015 to an astonishing 638 million in 2016 — 167 times as many as the year before.
Bitcoin and other cryptocurrencies remove one of the biggest barriers to ransomware: sending and receiving payments. Once the attackers collect the ransom, victims have very little chance of tracking or recovering their money.
As cryptocurrency prices reach incredible new heights, it’s ignited a frenzy to join the party. Most cryptocurrencies generate new coins through “mining,” which requires users/miners to compete with each other to solve highly complex mathematical problems that require a great deal of computing power.
In order to get more processing power, cryptocurrency users have turned to alternative methods such as deploying powerful gaming GPUs for mining purposes. If you’ve noticed that graphics cards have gotten more expensive recently, you can blame the cryptocurrency mining craze. Online, some GPU prices have doubled or even tripled from their retail price.
More insidiously, some people are secretly taking advantage of other computers’ resources and using it to mine cryptocurrency. For example, many YouTube viewers recently discovered that some ads on the website included code that was leeching their own CPUs and electricity for the purposes of mining.
Security researchers have also discovered new smartphone malware called “Loapi” that secretly mines cryptocurrency once it infects a new phone. The computations Loapi performs are so intense that the battery of one infected smartphone physically expanded, deforming the device’s cover.
Although there are encryption methods available for Bitcoin and Ethereum, the process of trading Bitcoin and other popular cryptocurrencies exposes them to attack. This is because cryptocurrency exchanges themselves likely lack stringent cybersecurity protections, such as encryption.
With the soaring price of cryptocurrencies, we should only expect attacks on exchanges to increase. The five top trending financial incidents during Q3 2017 all occurred at cryptocurrency organizations.
For example, during the initial coin offering of cryptocurrency trading platform CoinDash in July 2017, hackers changed text on the company’s website to point to a different Ether wallet address. This caused users to send the equivalent of $10 million to a fraudulent account, none of which could be recovered.
In addition to the recent Coincheck attack, other major cryptocurrency hacks have included an attack on the NiceHash mining marketplace in December 2017. The attack used sophisticated social engineering techniques to steal roughly 4,700 Bitcoins, which were worth $64 million at the time.
Despite the new security challenges prompted by cryptocurrencies, if you are a cryptocurrency user, there are ways you can protect yourself. For example, you can store encrypted local backups of your coins in a hardware wallet that isn’t connected to the internet. Encryption continues to be a proven way to protect sensitive data and secure digital assets of all kinds, including cryptocurrencies.