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September 22, 2020

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Can cryptocurrency be hacked?

Can cryptocurrencies be hacked or shutdown? Well, it depends entirely on the currency in question. For instance, Bitcoin is widely regarded as hack-proof, and this is mainly because the Bitcoin blockchain is being monitored continuously by an extensive network.

Attacks on the blockchain are sporadic and highly unlikely. And why is that? You see, blockchain technology boasts a very well-distributed and decentralized nature, which makes the system more robust in warding off hacker attacks. However, cryptocurrency hacking does take place, and this terrible scenario is known as a 51% attack, which we will discuss in more detail.

Bitcoin has never been hacked once ever since it was introduced; however, cryptocurrency wallets and other interfaces that handle the currency are certainly not immune to hacking attacks. In fact, they are much more accessible and vulnerable targets.

Let’s take a look at the vulnerabilities of hacking in cryptocurrencies:

Is Bitcoin truly Hack-proof?

In order to understand why Bitcoin is considered hack-proof, we must understand the dynamics and algorithms that power this cryptocurrency. You see, each miner or participant who updates a Bitcoin ledge will have to continuously solve complex math problems to add new blocks containing records of transactions.

The cryptographic hash function of Bitcoin is used to generate complex math equations. When a new block is added to the Bitcoin ledger, it is crucial to ensure that every single node in the network validates the specific block in question. A bitcoin ledge is only updated when all the nodes agree on the validity.

Hacking Cryptocurrency Networks

Manipulating and hacking a cryptocurrency network is increasingly challenging, thanks to the decentralized and chronological nature of the blockchain and the power-intensive computing involved in the digital ledger. Double-spending, which is the act of overwriting or erasing a block of Bitcoin transactions, is quite impossible given the nature of the Bitcoin blockchain.

So, what happens when a hacker attempts to hack or manipulate the Bitcoin blockchain? To answer this question, it is crucial to understand that the Bitcoin blockchain does not exist as one single copy. In fact, there are thousands of copies safely secured on nodes within a computer network. These nodes can be distributed all over the globe to maintain records of all the Bitcoin transactions that have been made to date.

A hacker who seeks to remove or change the information in the distributed Bitcoin records or any other network powered by blockchain technology will have to hack more than one computer. In simpler words, the hacker will have to attempt to hack more than half of the participating computers rather than attacking one computer or device. This brings us to an important concept: the 51% attack.

What is a 51% attack?

A 51% attack is the most dangerous threat faced by blockchains and cryptocurrencies. It basically means that a hacker or group of hackers have successfully managed to seize control of a majority of the networks powering the blockchain. Such an attack would give them control over the majority of the system, and allowing them to alter or overwrite the transaction history of the cryptocurrency.

In order to decide upon the transactions that need to be approved or declined, the hackers will need a majority, therefore the 51% attack. Successfully hacking 51% of the networks would allow the hackers to change the distributed ledgers of a blockchain, allowing double-spending.

Double-spending refers to the execution of one transaction several times. However, is a 51% attack easy to execute? Quite the contrary. Executing such an attack is extremely challenging and highly unlikely, which is why no such cases have emerged to the forefront.

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