Cryptocurrencies such as BitCoin and Ethereum have become the major source of income or exchange between many buyers and sellers online. They form a major part and parcel of all digital transactions. People prefer to transfer money in BitCoin over their usual counterparts.
Yes, hackers can steal cryptocurrency as well. Since this currency is a digital currency and is susceptible to being stolen. The following are the common methods of stealing cryptocurrency:
- Hacking the crypto exchanges.
- Hacking the blockchains.
- Crypto-Adjacent crimes.
- Hacking the CAS (Crypto-Application Software)
This article will attempt to explain and elaborate on the concept of cryptocurrency. Furthermore, the modes through which hackers might steal cryptocurrency will also be elaborated in detail.
What Is The Mode Of Operation Of Cryptocurrencies?
Cryptocurrency is a decentralized, blockchain-based digital currency. There are more than 19,000 distinct cryptocurrencies in circulation. You may be aware of Bitcoin and Ethereum, the most popular variants.
A cryptocurrency seems to be a decentralized, digital, and encrypted mode of trade. However, unlike U.S. Dollar or even the Euro, there isn’t a central authority responsible for managing and maintaining the value of cryptocurrencies.
Instead, these duties are divided widely among users of a cryptocurrency over the internet. Although cryptocurrencies may be used to purchase conventional goods and services, most individuals invest in them similarly to stocks or metals.
Cryptocurrency is a fresh and interesting asset class, but acquiring it is dangerous since you must conduct extensive study to properly comprehend how each system operates.
In 2008, Satoshi Nakamoto published a paper in which he defined the fundamentals of Bitcoin. The idea was characterized by Nakamoto as “an electronic system of payment based on cryptographic evidence rather than faith.”
This cryptographic evidence consists of verified and recorded transactions on a blockchain.
What Does Blockchain Mean?
A blockchain is an open, decentralized database that records transactions using computer code. In practice, it resembles a checkbook that has been dispersed over multiple computers worldwide.
Transactions are stored in “blocks” which are then connected in a “chain” of previous bitcoin transactions. With a blockchain, each user of a cryptocurrency gets their personal copy of the book to produce a centralized ledger of all transactions.
Each new transaction is recorded as it occurs, and every version of the blockchain is instantaneously updated with the new data, ensuring that all records are identical and correct.
Each transaction is validated using a mechanism such as proof of labor or proof of stake to avoid fraud. Despite the hazards, investors from over the world have flocked to Bitcoin and other digital currencies due to the promise of rapid profits.
Bitcoin’s success has spawned countless imitators, followers, and enthusiasts. Not to be outdone, thieves also identified possibilities, for when there is a prospect of wealth, there is a chance to steal it.
What Is Blockchain Protection?
Bitcoin was introduced in 2009; it is a decentralized digital currency, implying it is not managed or governed by a central authority, organization, government, or other body.
Peer-to-peer transactions fueled the emergence of digital money, which transformed into a digital world where a blockchain token could represent anything. Blockchains include public ledgers which record and validate all cryptocurrency network transactions.
Everyone may view transactions, the involved pseudonymous addresses, and the amount moved.
However, these accessible ledgers do not let anybody to add or modify records; this is accomplished automatically through scripts, programming, and automated transaction validation.
What Is a Blockchain Security Mechanism?
In a blockchain, security is addressed via cryptographic algorithms and consensus procedures. Encryption is used by blockchains to encode transaction data and to incorporate data from prior blocks in each subsequent block.
Through encrypted data, the entire ledger is linked together. Each block added increases its security.
Therefore, an existing blockchain cannot be “hacked” in the conventional sense, where malicious software is inserted into the blockchain or somebody “hacks” into the network via brute force or begins making modifications to the code.
Is A Blockchain Vulnerable To Attack?
A hacker or group of hackers might seize control of a blockchain by controlling the bulk of its processing power, or hash rate. If they control more than fifty percent of the network’s hash rate, they can change the blockchain through what is known as a 51% assault.
This permits them to modify transactions that had not been verified by the blockchain when they acquired control. Transactions are deemed successful once six confirmations have been received.
For example, if you sent 1 BTC to a buddy, the transaction would’ve been recorded and verified in a single block; this is the initial confirmation. This is the second confirmation. The block is then closed.
This must occur four more times before the transaction may be processed by the network. In a 51% assault, transactions that haven’t been executed can be reversed. The attackers might then utilize credentials in use in transactions that the system has not yet validated.
They may move the coins to unknown addresses, and the modified blockchain will behave in accordance with how they coded it.
How Do Hackers Steal Cryptocurrency?
Following are the methods through which hackers may steal the cryptocurrency:
1. Wallet Hacks
The private keys and the manner in which they are stored are the cryptocurrency and blockchain’s weak points due to the method of storage.
A custodial relationship here between the key owner and a key holder provides the key holder power over your cryptocurrencies if you allow someone else to keep your keys for you.
This is where the majority of hacks and thefts occur: a wallet with private keys. Wallets, which are software apps installed onto mobile devices and PCs, keep all private keys-this is known as hot storage as it is quickly accessible. Additionally, they can be kept on USB flash drives or written on paper, this is called cold storage because it isn’t as quick as the former methods, it’s also more secure because the attacker would have to gain physical access over the wallet.
The software and electronic versions of wallets are either linked to the web or just not connected. Typically, cryptocurrency exchanges provide their consumers with hot and cold storage options; these techniques are called custodial since they retain your keys.
2. Exchange Hacks
Regardless of what the custodial key holder claims or the amount of protection they promote, they are a security vulnerability. In general, exchanges retain cryptocurrency reserves for liquidity purposes and secret keys for the majority of their customers.
This renders them a desirable target for cybercriminals. Thieves attack bitcoin exchanges to get access to cryptocurrency keys.
If you do not maintain your private key on such an exchange, then cannot be accessed and your bitcoin is protected from exchange hacks.
Bitcoin and other digital currencies are purchased, traded, and kept on exchanges, exactly like traditional commodities.
But crypto investors and exchange operators frequently oppose centralized authority and reject tight inspection, which can result in inadequate security. The majority of these issues are caused by inadequate security.
Passwords may be stolen if attackers gain access to the server. Once they have the credentials, they can move bitcoins from one address to another, preventing others from accessing them.
3. Blockchain Hacks
All cryptography relies on the blockchain — a chain of interlocking code blocks. It maintains the information on all bitcoin transactions.
Because each piece is linked, it is difficult to modify a block of code by affecting the entire chain. This is the basis for the security claims being made by proponents of cryptography.
Nevertheless, there is a hypothesis that if a party were to control more than fifty percent of a blockchain, it might begin rewriting transactions, preventing new ones, and double-spending money.
Such an attack would be exceedingly difficult and incredibly energy-intensive. Due to the amount of energy required, it is currently impossible with bitcoin.
4. Crypto-Adjacent Crimes
Many crypto-related scams have less to do with its technology and more to do with old-fashioned compromising situations or extortion in which the perpetrators demand payment in crypto.
Ponzi-style schemes, in which a new coin is marketed and its worth is inflated by its inventors, who then ditch all the coin when the price hits its peak, leaving many investors bankrupt, have been the most prevalent type of fraud.
What Is The Way To Safeguard Cryptocurrencies?
You may take some simple precautions to prevent the theft of your Bitcoin. Knowing how the keys are kept, how you and others might access them, plus how you are able to keep them inaccessible are crucial elements.
Wallets that are connected to some other device or to the internet are the least secure. For security reasons, you must never store the keys on such a device with an always-on or accessible connection.
If it is connected and an application uses it to obtain your keys, it is susceptible to hacking. Contrary to advertisements and wallet evaluations for cryptocurrencies, you do not require a commercially produced gadget to serve as a wallet.
It can be conclusively said that applications (software) and hardware can be compromised. Hackers can steal your cryptocurrency since private keys are kept in applications or device wallets.
It is advisable to keep your private tokens and keys safe. Use secured cryptocurrency exchanges and ensure that the blockchain or the cryptocurrency is safe and secure.