In August 2010, a bug in the Bitcoin network that allowed large transactions to be added to the ledger without proper verification was identified by a hacker. The hacker generated and siphoned 184 billion Bitcoin (BTC) into three separate accounts. Fortunately, the bug was quickly identified and erased from the blockchain by developers. The existence of blockchain technology would indeed have been threatened if the hacker was successful.
Since the emergence of blockchain technology, numerous industries have adapted the technology to store and transfer chunks of data. The technology boasted of an iron-clad defense system that supposedly could not be hacked. The industry has boomed graciously; however, its secure, decentralized system has been threatened by hackers, frauds and different scams. According to the Wall Street Journal, more than $4 billion was lost to cryptocurrency scams in 2019.
Blockchain technology is a digitized, decentralized ledger that boasts of a tightly secure, peer-to-peer encryption method of confirming transactions. By using a distinct protocol of verifying transactions, false operations are easily detected. Security in blockchain technology is built on:
- Encryption: A method of wallet protection where each user is provided with a unique key called a “hash.” Hashing is a mathematically generated process in public-key cryptography where a specific, fixed output is generated regardless of how many times the function is used. Simply put, it is a key to each user’s safety deposit box — their wallet.
- Mining: Mining is a complex, expensive process responsible for maintaining the integrity of the technology. Blockchain miners add new “blocks” of transactions to the chain, confirming that each part of the transaction is valid. In turn, they are rewarded in cryptocurrency.
- Immutability: Arguably the most crucial component of the technology, the distributed ledger remains unaltered. The immutability of the technology means information cannot be erased from the platform once the transaction is confirmed.
How is the technology being manipulated by fraudsters?
Blockchain technology has suffered diverse forms of attacks since its release. Many of the attacks have been targeted against cryptocurrency wallets and exchanges. Here are some of the most notorious methods of manipulating blockchain technology.
51% attacks: Mining is a highly intensive process that requires high computing power. However, if a miner or group of miners were to hypothetically gain more than 50% of the computing network, they would be able to control and manipulate it. They would be able to add new transactions to the system without spending. This way, they would “double-spend” coins. Perhaps the most alarming of 51% attacks occurred in May 2018 when the Bitcoin Gold blockchain was attacked by a set of coordinated actions. A total of $70,000 in Bitcoin Gold (BTG) was double-spent, and in the aftermath, BTG was delisted from Bittrex. In January 2019, Ethereum Classic…