What are the Dangers of Bitcoin?


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Tuesday, February 20, 2018

Bitcoin has been one of the biggest tech stories of recent months. But aside from the financial risks, what are the dangers of using this virtual currency?

Article 3 Minutes
What are the Dangers of Bitcoin?

Bitcoin has been all over the news recently, thanks to a huge spike in demand for the cryptocurrency in late 2017. At its peak, the value of the currency jumped as high as $20,000 in December, up from less than $2,000 at the same time last year, before suffering an inevitable decline to around $10,000.

While this made some early investors in the technology very happy, Bitcoin's vulnerability to market forces and wild price fluctuations has been laid bare by the recent activity. Trying to put an exact figure on the value of the currency at any given time is still tricky, as it can lose and gain more than ten percent of its value on a seemingly hourly basis, and no-one's quite sure if and when the bubble will finally burst and send values crashing down again.

But while the investment risks of getting into Bitcoin should by now be clear to even the most optimistic trader, this is not the only danger that you might expose yourself to. There are also a range of technical security risks that could cause problems, which you should be aware of if you decide to take the plunge.

Is blockchain a secure solution?

Bitcoin and similar cryptocurrencies rely on blockchain, or distributed ledger, technology for much of their security. This consists of an open set of records that detail each and every transaction. This is shared between all users and, while anyone can read or write to them, once they are in the system they are extremely hard to alter. This, in theory, makes blockchain very secure.

However, it's still a relatively new technology, which may mean there are many loopholes and exploits that criminals can take advantage of. As the ledger cannot be changed, it is also impossible to reverse a Bitcoin transaction - another factor that makes it attractive to thieves. Therefore, it pays to be wary.

The dangers of hacking

Like the rest of the tech world, hacking is a constant threat to Bitcoin wallets, and if you do fall victim there is usually little you can do about it. And as the value of Bitcoin remains high, even after recent falls, it is a hugely tempting target for criminals, as it offers high rewards for comparatively little risk.

Malware can compromise Bitcoin wallets and passwords just as is the case with any other data, and the consequences can be severe. For instance, in December 2017, more than $64 million in Bitcoin was stolen in a hacking attack on a Slovenian Bitcoin marketplace.

Who are you sending money to?

For many people, the anonymity of Bitcoin is part of its appeal, but this can pose problems when it comes to actually sending money from peer to peer. Bitcoin addresses are complex alphanumeric codes and it may be possible for a criminal to spoof an address in order to redirect funds, for example, with malware that can change an address as it is copied and pasted. This can be hard to spot by the sender until it is too late, so it's important to be sure the address you're putting in comes from a trusted source, and double-check it before you hit confirm.

Don't lose your wallet

One other factor is that, even though Bitcoin is a 'virtual' currency, the data that makes it up still has to sit somewhere. Like all data, it's therefore vulnerable to issues such as hard drive failures, loss, or theft, be this physical or through malware. Given the nature of cryptocurrency, it's not something that can be backed up, so extra precautions need to be taken to keep wallets safe - just ask the man who wants to dig up a landfill site in search of a hard drive containing over $100 million worth of Bitcoin that was thrown away before the price exploded.

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25/06/2021 Linda Dennison
What if someone asked you to download Bitcoin ap for them on your phone another question can I get in trouble