On forums and social media you’ll sometimes see headings saying, “My bitcoin’s been hacked!” or something like that. Reading further into the situation you’ll see that what really happened is somebody gained access to their wallet and drained it. If the headline’s author includes their wallet’s public address, you can even track where the bitcoin went by following it through the blockchain with a blockchain explorer. While a computer hack may have taken place, the target wasn’t the Bitcoin network, instead it was the victim’s personal computer hardware or software. The Bitcoin protocol has never been altered without community consensus, but there was one time when it came close to getting overrun. More on that below.
Since its inception, Bitcoin has never been hacked.
Thanks to the decentralized and distributed nature of blockchain technology, Bitcoin’s ledger cannot be manipulated.
Most bitcoin theft happens due to user error.
But there was that one time in July of 2014 when the Ghash.io mining pool gained a majority vote that could have permanently damaged the network.
One of Bitcoin’s biggest benefits is its security. Since its inception over fifteen years ago, no one has been able to manipulate the Bitcoin ledger.
Bitcoin’s blockchain technology is distributed and decentralized. This means Bitcoin data is not stored in one central server but across a massive network of computers, run by independent people and groups across the globe. This network of computers is constantly checking and verifying records to make sure the ledger is accurate.
The only way to change the Bitcoin blockchain is by adding a new block of transactions. To do this, Bitcoin participants known as miners must solve complex mathematical puzzles. The miner who solves the puzzle first can add the new block to the blockchain network, but not before every computer, called a node, on the network reviews the validity of the block. Only if fifty-one percent of the total active network computing power agrees can the Bitcoin ledger be updated.
To hack Bitcoin, someone would need to penetrate the entire network of miners by taking control of more than half of the participating computers. This type of hacking is known as a 51% attack.
In a 51% attack, a person or organization seizes the majority of the computing power on the Bitcoin network. With network control, the hackers could interfere with the process of adding new transactions to the blockchain.
For example, they could prevent other miners from completing blocks so that the hackers are the only ones who can mine new blocks and, therefore, reap mining rewards. They’d also be able to create duplicate transactions and spend the same bitcoin multiple times – so called “double spending”.
It’s worth noting that even if a 51% attack succeeds, they can’t cancel existing transactions, make up fake transactions, create new coins, or break into somebody else’s wallet to steal their assets.
While Bitcoin has never suffered a 51% attack, a cryptocurrency that uses some of Bitcoin’s code has. In 2018, Bitcoin Gold (BTG) experienced a 51% attack. Hackers were able to control a large portion of Bitcoin Gold’s computing power so that they were able to double spend the same tokens for days, stealing more than $18 million of BTG.
A Weird Summer in 2014
Sometimes groups of miners will band together to form a powerful single entity, which increases their chances of receiving rewards for validating new blocks. These cooperatives are called mining pools, and the most powerful mining pool in Bitcoin history was Ghash.io. In July of 2014, blockchain analysists discovered that Ghash.io controlled more than fifty-one percent of the total computing power of the Bitcoin network. This means that if they wanted to, they could have ruined Bitcoin. Luckily, they chose not to alter the ledger, and soon lost their majority control when miners left the pool. This incident does not count as a 51% attack because Ghash.io did not have malicious intent, but it was a scare for the Bitcoin community and a good reminder to stay vigilant against any group gaining too much control.
While Bitcoin is hacker-proof, it is not theft-proof. Bitcoins do sometimes get stolen, but this is not the fault of the Bitcoin network itself. Rather, most bitcoin theft happens due to user error.
Poor password management
In 2021 the FBI gained access to a hacker’s private keys and recovered the bitcoin ransom paid by Colonial Pipeline. The FBI was able to track the movement of the stolen BTC through blockchain data and obtain the private keys to that wallet because of poor password management – though they haven’t explained their exact methods. If the bitcoin were held in an exchange account, the FBI would just need to guess the account password to gain full access.
There are lots of ways to find somebody’s private keys and account passwords. Hacking somebody’s email and searching is one way, hunting through screenshots on a stolen phone is another. The lesson here is NEVER store your passwords online, and NEVER screenshot your wallet’s private key. Write your wallet’s private key down in ink on archival paper and store it in a safe, lockbox, or somewhere you know it will be protected.
Using a hosted wallet
We often preach about the importance of steering clear of keeping your crypto in custodial wallets hosted by third parties such as cryptocurrency exchanges. There are many reasons we feel so passionately about this, but one of the main reasons is because if someone hacked that third party, your coins would be compromised.Learn more about different wallets here.
The most infamous example of bitcoin theft through a crypto exchange is Mt. Gox. In 2014, it was revealed that the popular crypto exchange Mt. Gox was subject to a hack due to poor website code management. As a result, from 2011 to 2014, around 850,000 BTC belonging to customers were stolen.
While extremely unfortunate, the Mt. Gox event showcases the importance of not leaving your precious coins in an exchange-hosted wallet. Since then, most exchanges have improved their security, but we still highly recommend keeping your crypto in a non-custodial wallet like the CoinFlip Wallet.
Phishing
A scammer might pose as an exchange representative and ask you to enter your private keys in a very convincing-looking website to solve some imagined issue with your account. From that quick interaction your wallet can be breached and drained in one of the oldest forms of online scams, called phishing. Learn more about common scams here.
Cryptocurrency exchanges have a lousy track record when it comes to keeping customer coins safe. Fortunately, CoinFlip is not a cryptocurrency exchange. We never take any ownership of your crypto. Instead, CoinFlip helps you buy and sell bitcoin and other cryptocurrencies directly from your personal wallet safely and securely while ensuring that you always have full ownership of your coins.
We offer several safe and fast ways to buy and sell Bitcoin and other cryptocurrencies*:
Through a local ATM with cash – register online to save time!
Over-the-counter using wire transfer through CoinFlip Preferred
With the CoinFlip Wallet App
*Some location restrictions apply.
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