Cryptocurrencies like Bitcoins are a technological innovation: The virtual currencies are secured by encryption and are usually organized in a decentralized manner. The history of cryptocurrencies began in the early 1990s when a group of cryptographers and programmers referred to themselves as “cypherpunks” based on the word “cyberpunk”. In addition to technical discussions, the Cypherpunks also exchanged political positions; it was important to them to protect privacy. One means for this should be technologies whose security can be mathematically proven: encryption.
The Briton Adam Back is one
of the active cypherpunks. Back had to fight spam in 1997 Hashcash developed:
Hashcash used for the first time proof-of-work for proving Provided work and a
basic building block of Bitcoin and other cryptocurrencies. Fun fact:
Because Back invented Hashcash, it is sometimes rumored that Adam Back is
actually Satoshi Nakamoto, the pseudonym of the unknown Bitcoin inventor. “Satoshi
Nakamoto” is, so to speak, the Japanese equivalent of “Hans Mustermann”. On
November 1st, 2008, Nakamoto presented Bitcoin and the associated white paper "Bitcoin:
A Peer-to-Peer Electronic Cash System" (PDF). Nakamoto laid the
technical foundations of Bitcoin and left further development to others.
Cryptocurrency,
Blockchain, E-Wallet & Co.: Terms
If you would like to enter
the world of digital currencies, you will encounter terms such as “blockchain”
or “e-wallet”. If we take a look at how cryptocurrencies work, these terms
become a little clearer. Let's take a closer look:
Blockchain & Cryptography Make It Possible
If we look at the origin of
the cryptocurrencies - the cypherpunks from the 90s - it becomes clear that the
developers attached importance to privacy. Bitcoins pursued a similar
goal: They wanted to ensure that payments can be made anonymously and that
third parties should not be able to track these payments either. Encryption
is used for this in blockchain technology. With the help of cryptography,
information is changed in such a way that it no longer makes sense at first.
Bitcoin, for example, uses
the SHA256 algorithm. Transfers in Bitcoins are summarized in hash blocks. The
algorithm is used on the one hand to summarize transactions, and on the other
hand to be able to conceal payments from undesired third parties. Also, there is the security factor: if Bitcoin transactions were
unencrypted, it would be possible to change transactions in your own favor
using the Bitcoin program code.
For a better understanding,
we clarify the term “blockchain”: The name of the term is derived from the type
of data documentation. In other words: data set blocks are strung together
and thus linked to form a growing blockchain (= "blockchain"). Participating
network nodes agree on a uniform blockchain status using a consensus
procedure, while the cryptographic mechanisms ensure that data that has once
been included in the blockchain remains unchangeable.
Store Cryptocurrencies Securely in The E-Wallet
The term “wallet” or
“e-wallet” is often heard in connection with cryptocurrencies. Think of a
wallet as a kind of digital wallet for your cryptocurrencies. You need a
wallet if you ...
·
...
receive cryptocurrencies from others,
·
... store
cryptocurrencies or
·
... want
to send cryptocurrencies.
You need a separate wallet
for each of your cryptocurrencies, for example, a Bitcoin wallet, a Monero
wallet, and so on. With your Bitcoin wallet you can only manage Bitcoins,
but not Moneros. The comparison with a wallet is only partially correct because wallets are a little more complicated than the wallet. If you now
want to send cryptocurrencies to a wallet, you need the address of the wallet. This
address is a long combination of numbers and letters and each wallet is
assigned a unique address.
It is worthwhile to find
out more about the different wallets because sending cryptocurrencies can
cost money: Sometimes sending coins from your wallets costs almost nothing,
sometimes it costs more than 10 euros. Wallets are available in different
versions: as an online wallet as the simplest variant, as a hardware wallet for
those who are looking for a solution with more security, or as a software
wallet. This variant is usually offered for download by cryptocurrency
operators. Advantage: Your private keys are yours. Disadvantage: You
have to secure these private keys on a secure device.
Digital
Currencies: An Up and Down
From exultation to death
saddened: Investors who want to invest in cryptocurrencies need strong nerves! Erratic
fluctuations are the order of the day with Bitcoin & Co. Nevertheless,
one can hardly avoid considering whether the digital coins are not suitable as
an investment. Unfortunately, there are too many arguments against it:
No
official means of payment: Cryptocurrencies are not accepted by the department
store around the corner or by the responsible tax office - and very likely not
by your landlord either. There are a few online shops and organizations
that accept cryptocurrencies, but digital currencies do not work on a broad
front.
Lack
of protection: Common investments are sometimes more, sometimes less secure:
government bonds are undoubtedly safer than stocks. The statutory deposit
insurance applies in the case of bankruptcy of the system provider. This
is not the case with cryptocurrencies: no central bank, no state is behind the
digital taler. Nobody can guarantee that the crypto credit will be
profitable. The German financial supervisory authority BaFin and
the British FCA have already warned of the risk of loss of
cryptocurrencies.
Lack
of material value: Anyone who owns shares in a securities account is involved
in a company. Anyone who stores gold can assume that they have a means of
payment in case of a crisis. In both cases, there is a material value that
is recognized. This is different with cryptocurrencies: they only have
value as long as the users believe in the success of the respective
cryptocurrencies. If speculators turn away from a cryptocurrency, the
value can slide into the basement.
Cryptocurrencies:
Opportunities and Risks
A huge advantage of
cryptocurrencies is their flexibility: They can be used pseudonymously all over
the world without the need for an intermediary such as a bank. This means
that even large sums can be transferred worldwide in a matter of minutes. The
pseudonymity should be emphasized once again: Third parties cannot understand
who paid what for how much. Cryptocurrencies are therefore more
privacy-friendly than paying by debit or credit card.
The lack of state regulation
of cryptocurrencies can be problematic, however: own transactions can be
excluded by majority decisions by miners ( i.e. those who “ mine”
cryptocurrencies, see our article “Crypto Mining: Malware
KryptoCibule steals from victims” ). The mining process for managing
the blockchain is complex, which makes cryptocurrencies
less efficient. The fact that cryptocurrencies are not a currency in the
legal sense and that there are currently more than 1,000 different cryptocurrencies on the market does not simplify matters.
To be able to
estimate cybercrime risks with cryptocurrencies, we are now presenting a
specific case in which cryptocurrency websites were attacked using social
engineering.
"I Would Love to Be a Millionaire"
As reported by security
expert Brian Krebs on his blog, strangers have attacked several
cryptocurrency platforms. Apparently, they used data that they had
previously been able to trick GoDaddy employees into using social engineering. As
Krebs explained, the perpetrators changed the DNS records at GoDaddy, which
enabled them to redirect the e-mail and data traffic and to access the platform
systems. GoDaddy spokesman Dan Race confirmed to Brian Krebs that the
cybercriminals had persuaded employees to change data on some customer
domains: “We immediately blocked the accounts affected by this incident,
undoing any changes made to the accounts and helped affected customers regain
access to their accounts. "
GoDaddy spokesman Race did
not go into any more detail about how the attackers managed to get employees to
change their credentials. Social engineering is the name of this scam, in
which interpersonal manipulation is done to lure people out of
confidential information or even encouraging them to change accounts. Once
again, it shows how important security awareness is and that people
are often the greatest weak point.
Hacking Cryptocurrencies: Difficult, but Not Impossible
Of course, this was not the
first attack in the history of cryptocurrencies. As we saw at the
beginning, the connection between blockchain and encryption is thoroughly
secure. As the above-mentioned incident shows, however,
security is only as good or bad as the knowledge of the person using it. The
cryptocurrency Bitcoin is considered "hacker-safe" because the entire
network constantly checks the Bitcoin blockchain. In fact, Bitcoin has
never been hacked before.
In principle, hacker
attacks can be fended off well because blockchain technology is distributed
and decentralized. However, the wallets for storing cryptocurrencies
are much easier to hack than the blockchain. Accordingly, reports of
successful hacker attacks are circulating again and again:
· Internet World reports on attacks on blockchain wallets and gigantic numbers from 2020 in the article "Blockchain hackers stole more than 13.6 billion US dollars".
Cryptocurrencies:
How Safe Are They?
As you can see, there are certainly
arguments in favor of cryptocurrencies. There is privacy, but also the
security of the combination of blockchain and encryption. The
decentralized approach also promises security. However, it should be
remembered that there have been successful attacks on the wallets and that the
human factor can be added as insecurity, as the GoDaddy case showed. If
you do not understand cryptocurrencies as an investment, but as a means of
payment with generally rather low acceptance, as a digital alternative for
small purchases or for unbureaucratic international money transfer, then we
will already come closer to reality. Think carefully about which wallets
you want to use, because not all are safe, and some wallet operators also
charge high transaction fees.
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