Is Bitcoin safe?

in #bitcoin8 years ago (edited)

it’s very safe, if you follow some basic security practices. Keep your keys secret, back them up (preferably in offline storage / paper wallet / hardware wallet), don’t keep all your money in a single wallet, keep all transactions within the blockchain, use multiple signatures in organizations in order to ensure a single person cannot compromise the funds, and have a plan to ensure that relatives can retrieve the money in the event of your death. Blockchain technologies may well replace many centralized models that are currently used, while volatility in the BTC price provides challenges and opportunities. Bitcoin technology is not anonymous to organizations with enough resources to determine how funds initially entered or exited the Bitcoin network.

Long Answer:
A traditional payment system (like a credit card) has numerous vulnerabilities. Anyone who gains access to the credit card number can repeatedly charge for services. This means that an end to end security scheme must be implemented for transport security and for information stored (on paper or in databases). Compromise of a user's account exposes the user to fraudulent payments and the compromise of account data can result in identity theft. Organizations that maintain this information carry a heavy responsibility to keep this data secure and must provide measures for access control to prevent authorized disclosure of the information. Under this type of system, users are at risk of a mass data exposure if a database is not properly protected. Many websites have dubious security models which can easily expose user data to theft.

As Bitcoin is a decentralized system, it pushes some security responsibility and control to the end-users, especially responsibility for securing private keys that are used to validate transactions. Bitcoin security does not rely on access control. Transactions can be conducted over a public network, cannot be forged, and cannot be modified once validated by several nodes on the blockchain. Transaction data cannot be used to resend payments, as the transaction is only good for those recipients who can unlock the transaction by having the proper key.

Transaction validation of the Bitcoin network is based on a Proof of Work scheme, where after several validations; it becomes too computationally expensive to conduct consensus attacks against the blockchain. Essentially, the blockchain is a public ledger, which is completely decentralized. Miners around the world compete to solve a computationally expensive problem to mine the next block that will be entered into the blockchain. The miner's work is what secures the blockchain. In order to benefit from Bitcoin’s security model, users must secure their individual keys and keep transactions within the blockchain.

By safe.. possibly you mean how safe is the bitcoin encryption scheme?

Bitcoin private keys are generated from a number picked at random, with the number less than 2^256 . This key must be kept secret and backed up to prevent accidental loss. Typically this 256 bit number is written in 64 hexadecimal digits. The public key is then obtained by using elliptic curve multiplication, which is an irreversible mathematical function (i.e. a brute force search of all keys would be necessary to recover the key). The bitcoin address is obtained by using a series of one way cryptographic hashing functions on the bitcoin public address. The bitcoin address is obtained by taking the Secure Hash Algorithm (SHA256), followed by the RACE Integrity Primitives Evaluation Message Digest (RIPEMD160) to produce the 160 bit public key hash. To convert to the final Base58Check format, a version byte is added to the beginning to identify the type of data that is being encoded, a double-SHA (SHA 256) algorithm is applied twice to the prefix and data, with a 4 final byte checksum appended to the end.

A little science project to show the key strength…

In order to sign a transaction, the private key must be recovered. Let’s assume a brute force attack is used to determine the private key. This 256 bit number is approximately 10^77 in decimal (the number of atoms in the universe is estimated to be 10^80). In order to change a single bit in a system, the second law of thermodynamics specifies that an amount of energy no less than kT (k is the Boltzmann constant, T is the absolute temperature of the system) is required. Since k=1.38064852x10^-16 erg/ degree Kelvin and the ambient temperature of the universe is 2.73 degrees Kelvin, an ideal computer running at the universe’s ambient temperature would consume 3.769x10^-16 ergs every time it changed a bit. The total energy output of the Sun (360 degree direction) per year is 1.2x10^34 joules. Converting to ergs, total energy output of the sun is 1.2x10^41 ergs per year. In one year, using all the power of the sun, a computer could make 3.18x10^56 bit changes. 2^256 in decimal is approximately 1.1579209x10^77. Assuming you built a Dyson sphere to capture all the sun’s energy and assuming a worse case scenario, it would take 3.64x10^20 years to recover the key. It goes without saying that a table holding all the values, would be huge.

Transactions appear to the public to be “anonymous”; however most Bitcoin users will have to convert BTC to other currencies sometime. This means that your wallet where the funds were initially deposited can be identified against the account used to deposit the funds(credit card, bank account, etc). All transactions after that injection point are exposed on this public ledger, so anybody with some basic know how can track where the money moved from there.

By safe… possibly you mean.. is it a safe investment?

The real innovation is less the creation of a new form of currency, but the development of the blockchain technology. This impressive innovation is a sophisticated solution to the Byzantine General’s problem, which is a primary problem in reaching consensus in distributed systems. This innovation opens a whole host of new capabilities to create large-scale distributed systems that can reach consensus in a decentralized fashion. Many applications that currently rely on a centralized authority could be replaced by blockchain technology, making blockchain investment an interesting prospect.

Bitcoin price volatility has been an issue in the past. Many factors influence this value (scarcity of the supply, speculation, and bad press releases). Clearly, volatility is a poor quality in a currency, but it can present some interesting opportunities as an investment vehicle (buying low, selling high, etc). Whether Bitcoin proves to be a good investment will likely be determined by how well the blockchain continues to scale with more transactions and how the Bitcoin community continues to adapt to changing conditions. Bitcoin will likely not replace modern currencies as produced by nation states, but it will likely find niche uses where conventional currencies and payment systems do not serve well (micropayments, online services… etc).

beautifully explained artical from Justin Jones on quora.com

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