Theft of digital currency is not only a serious threat to cryptocurrencies but also threatens their very integrity and future. For instance, the Mt Gox hack in 2014 shook Bitcoin to its very core. As a matter of fact, Investors can have losses running into millions due to one cyber security breach. The real edge for cyber criminals is Internet anonymity.
Unlike regular thieves, cyber criminals have the luxury of working from choice locations besides concealing their identity. Bank robbers could do all the meticulous planning only to get undone by a camera in the right place. Similarly, there is the risk of physical harm due to confrontations or betrayal by accomplices. The nature of cryptocurrency therefore, is an advantage for both users and potential thieves.
Thieves in the online realm have lesser worries; namely that heists incur significantly less risk. The fact that identity can be concealed for one is huge. This means that they can potentially get away with serious crimes as long as they are prudent enough.
Interestingly, some of these ways have a very legitimate front and could dupe sophisticated owners of Bitcoin.
These are the 6 ways in which thieves can steal your Bitcoin:
Bitcoin Transaction Malleability
When making a transaction using Bitcoin, a person digitally signs it for verification of its validity. The signature comprises of data about the sender’s Bitcoin address and that of the recipient. Moreover, there is information on the amount transacted. The Blockchain takes the information and creates a unique hash for the transaction. There exists a flaw in the Bitcoin protocol called transaction malleability. This can enable the slight editing of the signature to produce different hashes for a single transaction.
Unscrupulous persons can utilize this by tweaking the ID of an incoming transaction followed by a claim of failed Bitcoin transfer. The system responds by re-sending the funds. This was exemplified by the Silk Road 2.0 black market breach. Crooks were able to tweak and withdraw coins worth more than $36 million
Through Financial Pyramid Schemes
Pyramid schemes have the basic functional mechanism of promising unreal returns to lure the maximum possible number of new users. Older users gain returns at the expense of newer ones. This method is not unique to regular currency and has found its way into digital currency.
A notable example is the Bitcoin Savings & Trust (BS&T) which promised a weekly interest rate of 7%. The founder who went under an alias raised about 500,000 BTC in 2012. Not surprisingly; about $5.6 million in value was lost. When it eventually shut down, most of the backers never got back their invested Bitcoin.
By Cryptojacking Computers
Cryptojacking is typically done using computers or servers infected with malware. These use an unsuspecting user’s processing power to mine Bitcoins. The mining itself is conducted in a fully legal manner minus the user’s consent.
What should raise eyebrows is unusually high CPU utilization since the miner is working in the background.
Through this, thieves can obtain Bitcoins they did not mine. It is eerily similar to being able to print money at a bank and taking it without the banks knowledge.
By Breaching and Hacking
In 2011, Mt. Gox exchange suffered a massive hack but nothing compares to that of CoinCheck NEM hack. In both instances, hackers stole the private keys of the exchange’s hot wallet. The result was access to all customers’ Bitcoins and NEM in this case. The losses were catastrophic amounting to about $450M enough to see Mt Gox shutting for good after filing for bankruptcy.
The potential of theft by hacking is real and devastating to exchanges and individual users. Cold wallets are now a popular tool for individual customers to guard against effects of hacking.
Man in the middle (MiT) Attack
In this form of attack, criminals steal from other criminals.
This technique may not draw the ire of an ordinary person because it connotes criminals getting a taste off their own medicine. That said, it is still a legitimate way to steal Bitcoins.
Through Physical Theft
This may sound peculiar or even funny. Yes, it is true that people can steal Bitcoin at gunpoint. In January, three men unsuccessfully attempted to steal from an exchange in Canada.
The fundamental instincts that drive all kinds of criminals are the same. It is not surprising to see physical theft also being a form of stealing Bitcoin
It goes without saying that the nature of cryptocurrency is convenient in so many ways to potential thieves. Users have a decentralized, uncontrolled utility to trade and exchange but criminals also have the same ease of access.
The only hurdle left for them is how to convert their bounty they collect to regular currency without raising an alarm. Nonetheless, someone smart enough to steal digital currency will easily find a way to maneuver this challenge.
Moreover, the theft of Bitcoin involves little to no violence as opposed to regular currency. This is not necessarily bad news but the margin of losses incurred by victims is staggering. It is prudent to take all the required countermeasures proactively.
Luckily, there are some solutions to this. First is taking a keen look at the security and reputation of digital currency exchanges before making investments. It is also wise to stay in the loop to always know any recent developments to be safe.
Another is the use of cold offline wallets like Trezor. This is the ultimate tool for individual users to guard against hacking and theft. It goes without saying that you should not invest more money in cryptocurrencies than you can afford to lose.