Jan 28: Over the last decade, Bitcoin has emerged as the largest cryptocurrency - by popularity and market capitalization - in the world. The Bitcoin network has proven to be undoubtedly secure. However, no technology is entirely safe. Bitcoin is a digital asset that promotes anonymity among users during transactions. Even though it is regarded as the most successful cryptocurrency available, Bitcoin also comes with its security issues, which users must know. Regardless of how you wish to engage in this network - as a day trader or a long-term investor - you must understand the risks that are associated with its use. The primary security challenges that every Bitcoin user must be acquainted with are discussed as follows:
Hackers and cyber attacks
Crypto exchanges are available for several users to trade on. They send these virtual currencies to digital wallets once they purchase them. Sadly, just like all financial activities, cyber attackers are attracted to such exchanges. In the past, these criminals have hacked into such systems. Even though the value of this cryptocurrency has risen dramatically over the years, some investors still fear that a single successful attack might cripple the currency entirely. While it is impossible to hack the blockchain technology itself, the crypto exchanges might be relatively susceptible to different attacks. In fact, anyone can gain access to a private key and wipe out a digital wallet clean without the user even realizing it.
Bitcoin's extremely Volatility
While the Bitcoin network adopts the use of secure cryptography, several users argue that its volatility renders it an unsafe investment to dabble into. This cryptocurrency has an international market, which is available at all times, without the need for a regulatory institution. Because of its volatility, Bitcoin might be worth $30,000 today and jump dramatically to $60,000 the next day, or vice versa. Even though this cryptocurrency has seen better stability, this period does not last long. This high volatility brings along high risks while investing in Bitcoin.
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Even though there have been several reinforcements that have been instituted by the Bitcoin network to assuage these security concerns, some users still hold this fear during Bitcoin transactions. As technology advances, the Bitcoin network has become stronger against possible double-spends. Yet, it is possible for people to coordinate an attack that can result in people spending a coin twice during a given transaction. Take, for example, someone can send x Bitcoins to a merchant after buying specific items from them. That person can complete another similar transaction by sending the same amount to another address that they control. This ensures that the merchant might believe that such a customer has sent the funds. Since the customer's address might receive these coins, the merchant won't. In this case, it will be impossible for the merchant to invalidate the transaction owing to the irreversibility of Bitcoin transactions.
This has become major security that people had associated with Bitcoin. It is possible to execute this attack even though it is extremely hard to do so. As Bitcoin mining becomes harder to complete, miners join pools to combine their computing power. The implication is that if a mining pool becomes very powerful, it is possible for it to command over 51% of the mining power. This can pose a formidable threat to the network. Through this, a group can double-spend, as well as create invalid blocks. Mining as pools might result in a pool having excessive power that can be misused.
The security challenges that Bitcoin faces are not about blockchain technology, which has proven to be a reliable network. Rather, these issues are related to its adoption. Nonetheless, Bitcoin investors must be aware of these concerns and the impacts that they can cause.