Recently, the FBI seized stolen bitcoins from a group of hackers. Instantly, inaccurate headlines swarmed the media that the FBI hacked bitcoin. What really happened was that the FBI was able to get the private key to that wallet, meaning that the Bitcoin network remained untouched.
While the FBI did not crack bitcoin's encryption, this turn of events has led many to question if it is possible to hack bitcoin. Read on to find out if bitcoin can be hacked and how bitcoin is sometimes stolen, or as in the case above, seized by the FBI.
Key takeaways:
Since its inception, bitcoin has never been hacked.
Thanks to the decentralized and distributed nature of blockchain technology, bitcoin itself is virtually impossible to hack.
Most bitcoin theft happens due to user error. Stolen bitcoins usually mean that those BTC were not stored securely.
Is it possible to hack bitcoin?
One of Bitcoin's biggest benefits is its security. Since its inception over a decade ago, no one has been able to hack bitcoin data in any way.
Thanks to the decentralized and distributed nature of blockchain technology, bitcoin itself is virtually impossible to hack. Bitcoin data is not stored in one central server but across a massive network of computers. This network of computers is constantly checking and verifying records to ensure that everything 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 agrees on the validity of that block. Only if all nodes agree can the bitcoin ledger be updated.
Because the Bitcoin blockchain is decentralized, chronological, and requires a lot of computing power, it is impossible to erase or overwrite a transaction. This prevents bad actors from trying to use already spent bitcoin - known as double-spending.
To hack bitcoin, someone would need to penetrate the entire network of miners by hacking more than half of the participating computers. This type of hacking is known as a 51% attack.
What is a 51% attack?
In a 51% attack, a person or organization would have to seize the majority of the computing power on the Bitcoin network. With majority control over the network, 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.
While bitcoin has never endured 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 hash power so that they were able to double-spend for days, stealing more than $18 million of BTG.
How do bitcoins get stolen?
While Bitcoin is hacker-proof, it is not theft-proof. Bitcoins do sometimes get stolen, but this is not at the fault of the Bitcoin network itself. Rather, most bitcoin theft happens due to user error. Stolen bitcoins usually mean that those BTC were not stored securely.
Poor password management
This is precisely what happened when the FBI gained access to a hacker's private keys. Likely, the person who hired the hackers was not tech-savvy enough to keep the coins from the hack secure in their personal wallet. 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.
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.
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 seriously upped their security, but we still highly recommend keeping your crypto in a self-custodial wallet like Olliv.
Can Olliv be hacked?
After the Mt. Gox incident, cryptocurrency exchanges have a lousy track record when it comes to keeping customer coins safe. Fortunately, Olliv is not a cryptocurrency exchange. We never take any ownership of your crypto. Instead, Olliv helps you buy and sell bitcoin and other cryptocurrencies directly from your self-custodial wallet safely and securely while ensuring that you always have full ownership of your coins.
Final thoughts
So, can bitcoin be hacked? The answer is no. Bitcoin is considered hack-proof and remains one of the most secure ways to store funds - as long as you are using a non-hosted/ self-custodial crypto wallet.