The Role of Cybersecurity in Cryptocurrency and Blockchain Technology
Updated October 3, 2022
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Credit: Twenty47studio / Moment / Getty Image
Cryptocurrencies such as Bitcoin and Ethereum — as well as blockchain technology more broadly — aim to provide secure digital money not controlled by governments or central banks.
Cryptocurrency's security relies on cryptography to protect it from unauthorized access. Cryptography can help ensure integrity in non-crypto applications that use blockchain technology and secure the computer systems that support both cryptocurrency and blockchains.
The role of cybersecurity in cryptocurrency and blockchain technology has implications for society at large.
This page explores the interlocking relationship among cybersecurity, cryptocurrency, and blockchain technology.
What Is Cryptocurrency?
Crypto began in 2009 as a reaction to the faltering of financial institutions. While widely discussed among techno wizards and entrepreneurs, many crypto users are low-income or unbanked.
As its name suggests, cryptocurrency — sometimes just called crypto — is an encrypted digital asset that serves as a monetary system. It allows users to complete an online transaction without using fiat money, or legal tender.
Cryptocurrencies are not issued by any central authority like a bank or other company, which means the price can vary significantly from day to day.
While cryptocurrency comes in many types, all work on the same principle of decentralization, and they all have to be mined before they can be used.
"Mining" refers to the process in which computers solve computational equations that verify transactions and simultaneously add new blocks to the chain.
Benefits and Risks of Crypto
Crypto has the potential to reshape the financial world, but it is so complex that understanding or evaluating it is a struggle. Consider these benefits and risks:
Crypto's creators envisioned a system that bypassed banks. Under a crypto-dominated financial approach, people would participate in the market with no third-party involvement.
Bitcoin, the primary cryptocurrency, features a finite number of coins. Under a bitcoin currency system, no government could flood the market with cheap money. In addition, using a global monetary system could help strengthen floundering national or regional economies.
As a young industry, crypto has seen both dizzying highs and steep declines. Between April and June of 2022, for instance, Bitcoin's value dove from over $45,000 to $20,000.
The main risk with crypto is the potential for fraud or theft. In 2022 alone, cybercriminals pilfered more than $1 billion in cryptocurrency from wallets, exchanges, and other trading sites.
What Is Blockchain Technology?
Blockchain technology evolved to serve as the public ledger for data transactions. Each time a transaction happens, it is added to a block that is attached to other blocks and then stored on a digital system known as "the chain."
Whenever a miner or validator solves a cryptographic puzzle, they forge a new block on the chain. Blocks can be linked together in chronological order to tell the story of any given transaction and provide an irrefutable record.
A complete copy of this global history exists at every node (or computer) participating in the blockchain network, which ensures that records cannot be altered retroactively without compromising all subsequent blocks.
The blockchain structure remains the same whether it serves a cryptocurrency or another purpose. Non-financial applications of the blockchain include voting, digital IDs, carbon credits, and federal government operations.
Pros and Cons of Blockchain
Does the blockchain enhance data security online, or does it provide hackers with new opportunities to snap up information? Probably both. The blockchain's primary benefit — transparency — inherently conflicts with its major drawback — security.
Blockchain can provide transparency, greater data accuracy, heightened levels of protection against fraud and theft, and reduced error rates.
However, as a young technology, blockchain needs further testing to ensure these benefits materialize.
Some potential drawbacks may compromise the validity of blockchain as a standalone solution, including limits on scalability and security concerns with open-source code.
We need to address these obstacles before blockchain can be widely adopted.
How Cryptocurrency and Blockchain Technology Are Linked
Created in 2009 by a person (or group) known as Satoshi Nakamoto, bitcoin became the first cryptocurrency.
Bitcoin offers users a unique alternative to conventional currencies because it relies on blockchain technology, not banks, to validate transactions. This technology allowed people to send and receive bitcoins securely, despite not knowing — or even trusting — each other.
Unlike other non-cash currency alternatives, no one could change any part of the bitcoin transaction or make new bitcoins out of thin air. This is made possible through cryptography, a mathematical calculation that serves as the verification process for transactions before they are accepted into the blockchain. The information involved is recorded on millions of computers worldwide, so counterfeiting bitcoins becomes virtually impossible.
While cybersecurity preceded the blockchain, this new technology presented new opportunities to improve security. Blockchain's secure platform includes consensus mechanisms and data tampering detection options that traditional software lacks.
Where Cybersecurity Meets Crypto and Blockchain
Cryptocurrency and blockchain technology exist because of cybersecurity.
The decentralized nature of the blockchain relies on security vulnerabilities being virtually eliminated. Blockchains aim to provide a new type of trust and allow users to transact seamlessly without a central authority. If this trust and security is compromised, crypto and blockchain will be rendered useless.
Hacks on centralized exchanges have cost millions of dollars' worth of their coins and created instability in the marketplace. It is imperative for developers to focus on security.
To ensure greater stability, future investors must continue to do their due diligence when considering projects with potential cryptocurrencies. Companies need to increase public awareness about investing in cryptocurrencies so they can take necessary precautions before participating in transactions using digital assets.
Ultimately, everyone needs an understanding of what drives the industry forward so they can identify possible threats and take proper steps towards mitigating them.
The Future of Crypto, Blockchain, and Cybersecurity
The blockchain opens the door to both secure data exchange and hacking opportunities. In 2016, a cyber breach of the popular cryptocurrency exchange Bitfinex caused a loss of 120,000 bitcoins. The 2014 Mt. Gox fiasco resulted in approximately $480 million dollars' worth of Bitcoin disappearing.
These digital asset cybercrime incidents have led to increased awareness and adoption of cybersecurity measures for crypto exchanges, particularly during initial coin offerings.
Understanding the future potential for cryptocurrency, as well as blockchain technologies, depends on the success and adoption of cybersecurity initiatives.
In turn, cybersecurity's success relies on its ability to attract and retain qualified and educated cybersecurity professionals to the industry.
Additional Resources
Questions About Crypto, Blockchain, and Cybersecurity
How is blockchain technology different from cybersecurity?
Blockchain technology is a digital ledger system for storing, distributing, and protecting sensitive data. In layman's terms, it is one single, unchangeable record maintained by an entire network without relying on a single person or institution to process the data. It is said to be tamper-proof. Cybersecurity, on the other hand, is the practice of protecting critical systems and sensitive information from digital attacks.
Is blockchain technology similar to cryptography?
Cryptocurrencies such as Bitcoin, Ethereum, or Litecoin use blockchain technology to make all transactions extremely secure. Cryptography, a type of math, helps to encrypt the public key for each user, making it impossible for someone else to spend money using their account without permission.
How is blockchain related to cryptocurrency?
Blockchain serves as the backbone for cryptocurrencies. When someone wants to send some Bitcoin, Ethereum, or another cryptocurrency, they send data across the blockchain. This broadcasting process is how information gets distributed on any computer network, with updates coming from many different sources being combined together. This is how a global consensus is built, so there are no breaks or interruptions in service.
Is cryptocurrency subject to cyberattacks?
Cryptocurrencies were specifically designed to avoid centralized financial institutions, which can result in more opportunities for cyberattacks. In 2022, one of the most infamous instances occurred when hackers made off with $500 million dollars' worth of Ethereum.
Reviewed by: Monali Mirel Chuatico
In 2019, Monali Mirel Chuatico graduated with her bachelor's in computer science, which gave her the foundation that she needed to excel in roles such as a data engineer, front-end developer, UX designer, and computer science instructor.
Monali is currently a data engineer at Mission Lane. As a data analytics captain at a nonprofit called COOP Careers, Monali helps new grads and young professionals overcome underemployment by teaching them data analytics tools and mentoring them on their professional development journey.
Monali is passionate about implementing creative solutions, building community, advocating for mental health, empowering women, and educating youth. Monali's goal is to gain more experience in her field, expand her skill set, and do meaningful work that will positively impact the world.
Monali Mirel Chuatico is a paid member of the Red Ventures Education Integrity Network.
Page last reviewed Sep 19, 2022
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