Bitcoin has grown extremely popular over the past few years. Unfortunately, as a result of that popularity, more and more thieve and scam artists have been targeting bitcoin mining services. In early December 2017, one particular service was hacked to lose $64 million.
Situations like that can certainly scare off any amateur investor into believing that bitcoin is problematic and insecure. However, in reality, bitcoin currency is secure and even regular everyday people can keep it safe with little effort. The issue of theft and scams with bitcoin lie in the fact that many people don’t understand the way the cryptocurrency works, which results in poor choices being made that leave them vulnerable. To get a better understanding of this, it’s important to know how bitcoin works and about the five most common threats, scams and hacks it faces.
How Does Bitcoin Technology Protect Your Funds?
Bitcoin is essentially like money that’s secure inside a safe deposit box. How you use that safe deposit box depends up to the user, whether they want to personally manage it or have a third-party manage it for them. The majority of investors go with the latter option and make purchases with their bitcoin cryptocurrency and store their bitcoin by using a service such as Coinbase. Generally, this is the wise thing to do because there are a number of security features found within bitcoin.
However, the other option is to get your own bitcoin wallet, which requires keeping track of both a public and private key. A public key is something that allows anyone to give you bitcoin while a private key is only for you so that you can access your bitcoin safe deposit box. The private key is impossible for the layperson to guess because of the way bitcoin is constructed. That means nobody is able to hack into your bitcoin wallet.
Common Methods of Threats, Hacks and Scams within Bitcoin
Generally, there are ways that hacking or a scam can occur. These are the most common:
- Thief Gains Account Password from Storage Service: When you use a service like Coinbase, you typically use a basic username and password, which makes it easier for thieves to obtain your information. Hacking into your email account is the easiest way for this to happen. Once you are requested to reset your password, it makes you more vulnerable and gives the hacker access to your funds.
- Hacker Impersonates Bitcoin Recipient: Hackers are clever and can trick you by posing as bitcoin cryptocurrency recipients. This can occur when companies hold a fundraiser of sorts known as “initial coin offerings” in which investors request they send them bitcoin. This happened in 2017 when thieves used a fake website to impersonate the investors to request millions in funds. After the bitcoin was sent, there was no way to get it back, resulting in the actual companies and investors suffering huge losses.
- Usage of Insecure Third-Party: NiceHash, a bitcoin mining service that fell victim to the criminal activity that occurred in early December 2017, resulted in a $64 million loss due to hackers gaining access to an employee’s computer and the company’s bitcoin wallet. After the thieves gained access, they were able to empty the wallets, which included funds that belonged to NiceHash customers.
- Exit Scam: An exit scam is theft that involves a fraudulent company offering a bitcoin-related service that requires people to maintain bitcoin accounts. Once those accounts have been created and contain bitcoin, the company suddenly disappears, usually after claiming that it was hacked. In reality, the scammers behind this suddenly vanish from the Internet along with the bitcoin belonging to their so-called clients.