When it comes to a currency and an infrastructure that is all virtual, one of the most important issues is information security. Are cryptocurrencies themselves and related transactions safe? According to experts, at first glance, blockchain is a secure, transparent and immune system to attacks and hacking.
But MIT University reports that hackers have stolen nearly $ 2 billion worth of cryptocurrencies since 2017. The methods for stealing are varied, one of the techniques having a theoretical weakness in the blockchain is known as the “51% Attack”. As for the most famous cryptocurrency, Bitcoin, experts say that in practice, it is very difficult to break the blockchain system used.
“The security of transactions is provided by the blockchain network infrastructure. One of the special features of Bitcoin is decentralization, which means that you do not need to trust a third party. The element of trust in Bitcoin is the fact that this algorithm-based system will work. The only risk is if the entire Bitcoin network is hacked by a cyber attack. In theory it can happen, in practice it is impossible. “Even if the 200 most powerful computers in the world come together, they will not be able to break it” – says Henri Ndreca.
However, they note that the interfaces where cryptocurrencies are stored and handled are vulnerable to attacks.
“All transactions are verified and stored in the blockchain. Cases where you can fall prey to fraud are fraudulent exchange transactions and investing in new currencies that have just entered the market.
At this point, I know of several cases in Albania where different people have fallen prey to cybercrime. The cases that I have followed are related to Albanian citizens who, in order to buy Bitcoin, have used fraudulent sites (scam), where they have made payments and in exchange did not receive the coins they should have received “- says Besmir Semanaj.
In this case, the advice of experts is to invest in secure and verified online stock exchanges. Rrezeart Lahi says that today, the only security for cryptocurrencies and stock exchanges that trade them is the name, the experience they have and the information about them.
“The main guarantee is to get as much information as possible. If a cryptocurrency is traded on a reliable exchange, this is an important indicator to consider. “However, the risk of fraud will always exist, as it does in the classical financial sector,” he said.
“Attack 51%”, the risk of an abuse of technological power
One of the potential weaknesses or risks that experts have noticed in blockchain systems is the possibility of a so-called “51% attack”. This concept implies the possibility of controlling or manipulating a blockchain system, by a group of manufacturers that control more than 50% of the computing power of the network in question.
In such a case, these persons would be able to stop giving confirmation or validation of new transactions, which would block trading freely between some or all other users. In practice, this would monopolize the validation and production of the cryptocurrency itself, and the actor who possesses such power would be able to appropriate all subsequently produced currencies in the blockchain system controlled by him.
Attackers would also be able to reverse transactions performed once they have taken control of the network, meaning they could embezzle, or spend twice, the same virtual currency.
By comparison, owning over 51% of the power of a blockchain system would be a position similar to that of a firm with dominant power in a product or service market. If a firm with great market power in theory can impose prices and harm consumers or smaller competitors, a player with great computing power in blockchain networks can manipulate the system to provide benefits.
According to experts, an attack of this kind would not destroy the blockchain system of Bitcoin or another virtual currency, but would cause a great deal of damage. A system that could be manipulated would lose much of investor confidence, which would translate into a sharp decline in the value of the respective cryptocurrency in the market.
Colonial Pipeline, the most sensational “fine” with Bitcoin
One of the “stains” that cryptocurrency critics have often identified is the opportunity they create to channel money from criminal activity. Being a decentralized system and out of the control of any legal authority, detecting and blocking transactions in this system is very difficult.
In May of this year, some computer hackers managed to block the computer system of the Colonial Pipeline pipeline in the US, a pipeline that transports about 45% of the US East Coast fuel. The attack blocked for several days the supply of market fuel to the affected states. To unlock the system, the company was forced to pay $ 4.4 million in Bitcoin to the wrongdoers. This event had a negative impact on Bitcoin’s performance on the stock exchanges, causing a strong decline in value.
But in early June, U.S. authorities announced that part of that amount, about $ 2.3 million, had been discovered and recovered. This example shows that law enforcement authorities are developing capacities to fight crime even through these technologies. According to experts, building these capacities will be an important challenge for anti-crime structures.
They think that the gradual adjustment of cryptocurrencies will narrow the space for their use in dirty work. They note that all transactions in the blockchain system are public and traceable: authorities can trace any Bitcoin from the moment they log in until they log out.
Bitcoin mining is consuming energy
A special aspect of the business related to cryptocurrencies is their production, a process that in technological jargon is called mining. The process is certainly a revolution in itself when it comes to currencies. Every other conventional currency to date has been produced by a monetary authority, which has the legal monopoly of its production and circulation.
This is not the case with cryptocurrencies. Anyone can act as a central bank and produce their own cryptocurrencies. These cryptocurrencies are produced through open source software, which anyone can download and start producing a certain cryptocurrency. In theory, it seems very simple to produce your own cryptocurrency and trade it for profit. In practice, making a profit from this type of business is not so simple.
In order to produce cryptocurrencies, hardware devices must be purchased, which have significant costs and which have increased with the spread of the cryptocurrency trend. The basic equipment for the production of cryptocurrencies is a hardware GPU (graphic processing card). The price of this device is very different, depending on the generation and power. Such a used device can cost less than 1 thousand USD, while a new device, the latest generation, can cost over 20 thousand USD. But the biggest problem is not so much the initial investment, but the energy costs needed to produce the cryptocurrencies.
For example, the Bitcoin system works so that it can produce one Bitcoin every 10 minutes. Thousands of computers around the world are competing to produce this Bitcoin. Competition is about solving an algorithm, and the more powerful the computer, the more chances you have to produce or “win” a Bitcoin. On the other hand, the more powerful the computer, the more electricity it consumes. Given that this is a complex process, it is difficult to say exactly how much it costs to produce a Bitcoin.
It depends on the power of the equipment and the cost of electricity at the place where the production takes place. Large investments or “farms” of Bitcoin production are usually located in places where electricity is cheap, such as Iceland, which uses the temperature of geysers to generate electricity. For an ordinary individual in Albania it would not make much sense to try to produce Bitcoin from home, because the costs and competition are very high.
The use of electricity to produce Bitcoin has become today a concern regarding energy use, because the energy used to produce Bitcoin today is greater than the amount of energy that total individual states of the world can consume.
According to a study by the Cambridge Center for Alternative Finance, Bitcoin consumes about 110 terawatts of energy per year. This amount is equal to about 0.55% of annual global production or the total energy consumption of countries such as Sweden or Malaysia. If Bitcoin consumption were to be included in the ranking of energy consumed by states, it would be ranked 29th out of 196 countries in the world.