ScaredyCatGuide to Bitcoin and Other Cryptocurrency – Part VIII – Bitcoin Network and Security

scaredycatguide (73)in #cryptocurrency • 8 years ago (edited)

In the last post we discussed bitcoin transactions and the confirmation required to process them. Confirmations are just one component to what makes the bitcoin network secure, so let’s talk a little more about that here.

This post is part of a running series on bitcoin and blockchain basics

Find previous posts here:
Part VII – Bitcoin Transactions & Confirmations
Part VI - Two Factor Authentication and Passphrases
Part V – Wallet Addresses and Keys

Bitcoin Network and Security

A question I get asked a lot by people who have never invested in crypto is:

Can’t someone just hack the network and create a bunch of bitcoin?

The answer to that question is a simple, NO. Explaining that answer is a bit more involved.

The bitcoin network itself has never been successfully hacked, despite what the media wants you to believe. Exchanges and services built off the bitcoin blockchain have, but the bitcoin network itself has never.

Successful hacks on exchanges, such as Mt. Gox have occurred on multiple occasions. This is why I preach getting money off exchanges and onto soft and hard wallets. However, you do not need to worry about getting hacked through the bitcoin network.

What makes it secure

As discussed once before, the bitcoin network is a decentralized one. This factor is a big reason it is secure. There is no central point of failure or to attack.

Even if an individual’s machine were hacked the bitcoin network would continue on as the blockchain is on thousands of machines across the world.

You can check how many nodes (copies of the blockchain) are out there by using sites like https://bitnodes.earn.com/

In addition to decentralization the bitcoin network also uses cryptography to ensure the data and chronological order of the blockchain. To hack blocks is basically impossible as it would take every supercomputer in existence and more than a million years.

Generating new bitcoins (also called mining) is secure too because a distributed consensus system using complex algorithms is used to confirm transactions broadcast to the bitcoin network.

Dedicated hardware is needed to successfully mine bitcoin and the numbers of miners is large and spans the globe. This also plays into the decentralization as no single miner (or group) can shut down the bitcoin network.

A demotivated hack

Here's the thing about hacking the bitcoin network; there really isn't any reward to it. Hacking exchanges and wallets, the culprits walk away with bitcoin.

The network there really isn't anything to take. All the existing blocks on the chain represent processed transactions, essentially fund that have already been spent.

If the bitcoin network has any vulnerability it is not so much from a hack, but more of a hijack.

I'm referring to the 51 percent attack

This is about the only thing that could do irrevocable harm to the network as it could lead to an unsanctioned bitcoin fork that creates a secondary chain.

In order for this to happen a group of miners would have own atleast 51 percent of all bitcoin mining capacity.

However, even in such an instance it would still not impact past transactions and creating coins out of thin air or changing the number of coins awarded per block is not possible.

Also, this would not prevent transactions from other users (such as you and me) outside of stopping confirmations.

Confirmations occur from the generation of new blocks as we discussed in the part VII post, so the attackers could shut that down completely if they wanted.

However, that does not benefit them either since they won't be able to confirm their transactions, which is about the only place their is a benefit to doing all this.

Being able to double spend their own bitcoin is about the only positive outcome from a 51 percent attack. So they would need to hold a large amount of bitcoin to begin with, which also disincentives an attack as the value of those coins would drop in such an event.

Mining Pools

Over the past year AntPool holds the largest mining pool holding 17.7% of all mining capacity. I'm pretty comfortable that a 51% attack is not on the horizon.

To check mining percentages you can go here: https://www.blocktrail.com/BTC/pools?resolution=1y