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Nowadays, just about everything is going digital. It was only a matter of time before money ended up going that way too. Most of us are familiar with digital payment options including online card payments and inter/intra bank fund transfers. In 2009, the world saw its very first digital currency. A developer named Satoshi Nakamoto developed this virtual currency called ‘Bitcoin’. Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. The trend of using digital currencies to transact securely online has gained momentum all over the world. In this paper I will give a brief overview of cryptocurrency including its history and benefits. I will further discuss the vulnerabilities associated with Bitcoin.
Satoshi Nakamoto’s goal was to create an electronic peer to peer cash system. He decided to create a digital cash system that had no centralized authority. This was the birth of Bitcoin. The value of Bitcoin exploded. Cryptocurrencies has proven their value, their ability to operate in the real world, and have shown that they possess real purchasing power. Investment firms, trading organizations, and retailers have begun to accept them as legit forms of payment and currency.
Digital currencies like Bitcoins are called cryptocurrency. They are virtual currencies with real monetary value and can be used to make all types of financial transactions. Cryptocurrencies use a completely decentralized payment mechanism. Traditionally, in money exchange, every payment you make and receive is tracked by financial authorities. Authorities and third – party institutions are completely privy to everything you do with your money whether you are depositing money or making a debit card payment. This reduces monetary security and privacy to a great degree. One of the objectives of designing cryptocurrencies was to provide users with a way to securely transact online. This could be done out of the view of third- party financial banks, agencies, and authorities. Cryptocurrency allows users to spend, invest, and save money in complete anonymity. Today there are multiple types of cryptocurrencies including Ether, Litecoin, Monero, Dash, Zcash, and Ripple (Martucci, 2018).
There are several benefits associated with the use of cryptocurrency. One benefit is the ease of peer-to-peer interactions. Users can directly interact with other users and engage in trade. Another benefit is that the use of cryptocurrency allows for extremely quick settlements. Bitcoins take about 10 minutes to complete all transactions and are very efficient to operate. Cryptocurrencies allow users to purchase anything in just a matter of minutes. Low transaction costs are an additional benefit of using cryptocurrency. Cryptocurrency networks compensate miners for mining the currencies, ensuring that users don’t pay additional sums of money for procuring the cryptocurrency. Since there are no middlemen involved in the transactions, there are not transaction fees that need to be paid. Cryptocurrencies are also more secure. Identity theft is guarded against with the use of separate public and private keys. Without the private key, no one can access users’ web wallets and personal accounts. This allows for complete safety.
In addition, the use of cryptocurrency protects against counterfeiting and double spending. Cryptocurrencies are monitored, tracked and governed through blockchains. Block chains are online, decentralized ledgers that contain detailed information regarding every single transaction that a user has engaged in. Using this technology, participants can confirm transactions without the need for a central certifying authority. Once blocks are added, they are permanent and unalterable (Rhodes, 2017).
Bitcoin is so far the most successful cryptocurrency. Nevertheless, price volatility remains one of the most significant challenges facing all cryptocurrencies (Schwaz, 2018). The virtual currency Bitcoin faces some serious security concerns and risks. These include: use of for illegal activity, double spending, the safety of wallets, vulnerability to orchestrated attacks on Bitcoin exchanges, and fears of rogue miners engaging in selfish mining.
One of the biggest drawbacks and regulatory concerns around cryptocurrency is its ability to facilitate illicit activity. Concerns have been raised that Bitcoin could be more attractive to criminals because it can be used to make private and irreversible payments. Many black or gray market online transactions are denominated in Bitcoin and other cryptocurrencies. Cryptocurrencies are increasingly popular tools for money laundering. The same strengths that make cryptocurrencies difficult for governments to seize and track allow criminals to operate with relative ease (Martucci, 2018). Bitcoin is money, however, and money has always been used both for legal and illegal purposes.
Double spending within Bitcoin is the act of using the same Bitcoins more than once. Double spending happens when a user makes multiple payments using one particular funding form (Hasanova, et al., 2018). Bitcoin is digital money, not physical cash. Hence, Bitcoin transactions have a possibility of being copied and rebroadcasted. Reinforcements have been instituted to mitigate this concern. Bitcoin manages the double spending problem by implementing a confirmation mechanism and maintaining a universal ledger called blockchain similar to the traditional cash monetary system. Bitcoin’s blockchain maintains a chronologically ordered, time-stamped transaction ledger from the very start of its operation in 2009. Even though Bitcoin has become sturdier against double spending, there are still fears concerning the transaction risk.
Generally, cryptocurrencies store their value in a file store called a wallet. Each client owns a set of private keys to access the wallet. There is a real vulnerability of Bitcoin wallets. Weak spots in hardware wallets can be exploited. Even heavily encrypted wallets are vulnerable. Using malware, communication between the wallet and PC’s can be intercepted. The privacy of Bitcoin users is affected by this security breach because funds can be diverted into different accounts. Wallet theft uses classic mechanisms such as system hacking, phishing, the installation of buggy software, and the incorrect use of wallets (Hasanova et al., 2018). Any programming bug or lack of secure private key can be the foundation of a major security breach.
Cryptocurrency exchanges have to deal with the constant threat of distributed denial of service (DDoS) attacks. Bitcoin is threatened by (DDoS) attacks. As Bitcoin price continues to soar, people try to get their hands on the virtual currency which places a huge strain on exchanges and their servers. Exchanges are doing their best to fight against hackers who are looking to cripple their services and find vulnerabilities in an effort to steal Bitcoin. One of the most common attacks on exchange websites and their platforms is a DDoS attack. It is a cyber-attack on a service provider that looks to disrupt its service, usually by flooding the server with too many requests to handle (Hasanova et al., 2018). By using multiple sources to attack a server, DDoS attacks can be difficult to stop because they are not started by a single source.
In a DDoS hacker attack, cybercriminals scan the network trying to identify potentially weak nodes. The selected nodes are attacked, and the hacker becomes the system administrator of the network. Trojan programs are installed on the captured nodes, which work in the background an require additional control. Upon receiving certain controls from the hacker, the infected computers spread the virus to other computers that are in the network. During a DDoS attack, the users do not suspect that their system is infected and pass date to the attackers (Blockchain, 2018).
The security of Bitcoin relies heavily on the incentive compatible proof-of-work (PoW) based distributed consensus protocol, which is run by network nodes called miners. In exchange for incentive, the miners are expected to honestly maintain the blockchain. Selfish mining, however, is another underlying threat to Bitcoin. With some mining pools becoming powerful enough to command significant mining ratios, they may engage in selfish mining. This is also referred to as block withholding. A pool may use their computational power to mine a block and then hide it from honest miners instead of broadcasting the new block to the network (Conti et al., 2017). This conspiracy can cause considerable harm to mining because selfish miners can use their power to invalidate transactions on the network.
One of the worst things to happen to a proof-of-work cryptocurrency is a 51 percent attacks. Such attacks undermine the trust in a blockchain. In Bitcoin, a 51 percent attack is possible if a single miner, or group of miners can assemble more hashing power than all the other mining participants. If a situation arises where a group of miners have control of more than 50 percent of the total hashing power in a network, then that group could outvote honest miners. An attacker could defraud people through several methods. The attacker could create conflicting transactions by refunding coins to themselves or someone else after a transaction. The miners could also mine empty blocks and invalidate transactions. The coins would then be returned to the attackers. If someone were to conduct a 51 percent attack on Bitcoin, it would greatly reduce the value of the coins.
There is no denying that cryptocurrency is the future. Bitcoin is an innovative payment network and a new kind of money. It is an exciting concept with the power to alter global finances for the better. Bitcoin technology has a strong security track record. New tools, features, and services are being developed to make Bitcoin more secure and accessible. There are, however, risks and vulnerabilities associated with the use of Bitcoin. It is fair to say that Bitcoin and cryptocurrency in general remains a practical and technological work in progress.
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