The short answer? Yes.
For an asset that promises anonymity, privacy and a near impossibility of getting hacked, it’s been a wild ride for many users and investors of Bitcoin and other cryptocurrencies. About a fifth of all Bitcoin issued, or around $20 billion, has been lost, most of it permanently, according to the Wall Street Journal.
This may have to do with two opposite trends. When Bitcoin first launched in 2009, and for several years after that, when it was trading for under $100 a piece, people were careless with their private keys—not worrying if they got lost — and thereby causing them to lose their Bitcoin.
Fast forward a few years, to when Bitcoin reached more than $18,000 a share in December 2017, and then reached more than $64,000 a share in April 2021. The stakes suddenly became higher, and indeed, a screenshot, a series of keystrokes, a USB drive, or a compromised WiFi router could lead a hacker to a veritable fortune if carried out properly.
With the stakes quite high, cyber attackers have stepped up both the frequency and level of sophistication of their efforts to intervene in transactions in order to divert crypto assets away from their rightful owners.
How and Why Cryptocurrency Gets Hacked
Because of the underlying blockchain technology that supports cryptocurrency, in which data isn’t stored in a central server, but rather across a huge network of computers that is constantly checking and verifying the accuracy of records, a hack would be quite difficult. The hacker would have to breach a huge number of servers to gather information.
However, it’s important to note that when you hear about a crypto hack, it’s not the blockchain that gets hacked, it’s the peripheral digital services, platforms and networks that get hacked.
For instance, Bitcoin and other cryptocurrencies are held in digital wallets and traded through digital currency exchanges. These wallets and exchanges are the targets of cyber attackers — not the blockchain servers themselves.
Also, users and investors are most likely accessing these wallets and exchanges via mobile apps on their phones, connecting via WiFi or mobile data. Hackers can target these mobile data networks as well, in order to divert or intervene in a trade.
With the pandemic forcing people to work from home, and permitting many to continue doing so, the attack surface has increased. Cyber attackers know that individuals are most likely working, shopping and learning from home using unsecured devices, apps and networks. Without enterprise-level security, individuals, including crypto owners and investors, are vulnerable to attacks.
The uncertainty of the pandemic and the accompanying surge in interest in Bitcoin and other cryptocurrency since the start of the year has created a perfect storm for hackers. More cryptocurrency owners mean more crypto wallets, which mean more crypto exchanges accessed via more devices and more potentially unsecured wireless connections.
Can You Keep Your Crypto Safe?
Crypto newbies might be blissfully unaware of the inherent security risks in owning, storing and trading crypto. While customers of traditional banks and broker-dealers are covered by government-sponsored protection programs should those firms become insolvent, crypto wallet providers and exchanges do not provide such protection for their customers.
It’s important for cryptocurrency owners to employ the strongest security measures possible for their digital crypto assets, including two-factor authentication, separate devices or email addresses for crypto accounts, or even cold wallets, in which the private keys are printed on paper and stored in a physically safe location offline.
Record of Title: Another Level of Protection
It’s important to understand that cryptocurrency is a bearer asset: Whoever holds the private key is considered the owner. This can make it extremely hard to demonstrate proof of ownership should a private key be stolen in a hack. This security issue is perhaps one of the biggest reasons why institutional players have been slow to accept cryptocurrency.
At TransitNet, we’ve set out to create the first offchain title registry of record for digital wallets, in order to create an additional layer of protection for cryptocurrency assets. We are building a comprehensive platform to empower individuals and businesses with the option to create a record of title for their crypto.
Interested in being at the forefront of the new crypto infrastructure?
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.
The Wall Street Journal – A Fifth of All Bitcoin is Missing. These Crypto Hunters Can Help.
Investopedia – Can Bitcoin Be Hacked?