How Secure is Bitcoin?
in Bitcoin (BTC)
The sentiment in the Bitcoin community goes through some ups and downs. After China banned Bitcoin mining in Spring 2021, the network’s hashrate plummeted and the price of BTC dropped by 55% in a matter of weeks. With everything that’s going on, many people are starting to ask: how secure is Bitcoin?
In this article, we’ll look at the Bitcoin security model, what the Chinese mining ban means for the network, and finally; how you can keep your coins safe using a secure Bitcoin wallet like Exodus.
How Proof of Work Secures Bitcoin
Although most people think about Bitcoin as software, that’s only half the story. In addition to being software, Bitcoin is one of the largest computer networks in the world. More than one million ASIC miners secure the Bitcoin network and they’re located everywhere from Venezuela to Norway.
The ASIC miners perform complex math problems and the machine that finds the correct solution is eligible to create a new block on the network. When a miner creates a new block they’re given the block reward. The current block reward is 6.25 BTC, or about $220,000 at today’s prices (more information about Proof of Work is available here).
Why did Bitcoin’s Hashrate Drop?
Bitcoin’s hashrate (hashrate refers to the total computing power of a PoW blockchain like Bitcoin) went down about 50% in spring 2021 because China banned Bitcoin mining. Previous to the ban there were more Bitcoin miners in China than every other country combined. Although it can be difficult to say why China does anything, three reasons are used to justify the ban.
- China wants to force its populace to use the digital Yuan. Since Bitcoin could be a competitor to the digital Yuan, they banned Bitcoin mining to try and destroy the competition.
- Environmental concerns. A small percentage of the Bitcoin miners were using coal-powered electricity and China wanted to discourage this practice due to concerns about pollution. China is still responsible for over half of the world’s coal emissions though, so it would be strange if the Chinese government only cared about pollution from one industry.
- Cracking down on capital flight. The Chinese populace have famously used Bitcoin to get their money out of the country and the Chinese government wants to discourage this behavior.
Once China enacted the ban miners had to shut down their ASIC machines almost immediately. Since more than half of all mining was based in China it’s easy to see how the Bitcoin hashrate, and by extension the Bitcoin security, fell so quickly.
Does a significantly reduced hashrate mean that the Bitcoin network isn’t secure anymore? Let’s answer that question in the next section.
Is Bitcoin Still Secure?
The short answer to that is yes, Bitcoin is still very secure. Although the hash rate on the Bitcoin network is dropping, it’s only falling to the level it was at in May of 2020. Going back to last year’s hashrate, while unfortunate, is not an existential risk for Bitcoin.
In terms of long-term security, it’s important to understand that the Chinese miners have not given up. A brand new ASIC costs $2,000 to $3,000 and the largest miners have invested tens of millions or hundreds of millions of dollars into their operations. In the coming six months the Chinese miners will relocate to other countries and the hash rate will start to rise.
Furthermore, an absolutely key point is that China’s mining ban is making Bitcoin more secure than it’s ever been before. Historically, because a majority of BTC miners were located in China there was always the concern that the Chinese government could co-opt their operations and force them to perform a 51% attack.
The possibility of a state-coordinated attack on Bitcoin has been a concern for years, however, thanks to China pushing the miners out a 51% attack is no longer a possibility. The ex-Chinese miners are relocating to various countries worldwide, and it’s unlikely that any one country will end up with more than 50% of all mining capacity. It should also partially break up the huge chunks of mining power that were held by individual operations in China.
This new decentralization of mining will be great for Bitcoin security and further enhance the value proposition of a non-sovereign digital currency.
Can somebody steal my Bitcoin?
Moving onto personal Bitcoin security, The following are three common questions that people have about Bitcoin security and how to secure Bitcoin in a secure Bitcoin wallet:
Can my Bitcoins be stolen?
If you follow proper security procedures it is effectively impossible for a person, government, company, hacker or jealous coworker to steal your BTC. Bitcoin security is excellent and the network has never been hacked or compromised.
Is it safe to invest in Bitcoin?
So long as you use a secure Bitcoin wallet and are careful about how you use your crypto, it’s definitely safe to invest in Bitcoin. The real concern for most people is the extreme volatility in the crypto markets, which is why you shouldn’t invest more than you can afford to lose.
What makes the Bitcoin blockchain secure?
The one million or more ASIC mining rigs are what make the Bitcoin blockchain secure. To compromise the network an attacker would need to control more than half of Bitcoin’s hashrate, which would mean purchasing and setting up more than 500,000 ASIC miners. This would be incredibly difficult and expensive, which is why nobody has done it so far.
How to Secure Bitcoin
If you want to know how to secure Bitcoin you can follow these five steps to make sure that you never lose your coins:
1. Use a non-custodial Bitcoin wallet
A non-custodial wallet like Exodus is the safest Bitcoin wallet that you can use. Non-custodial means that the user has 100% control over the coins in their wallet. Once your BTC is in the Exodus wallet nobody else, not Exodus or the United States Government, can prevent you from sending a transaction or accessing your Bitcoin.
PayPal is an example of a custodial wallet. PayPal custodies their users’ funds and can freeze accounts, reverse transactions, and prevent people from withdrawing their money. None of that can happen when you keep your Bitcoin in a non-custodial wallet.
2. Never store your seed phrase digitally
A seed phrase (or secret recovery word phrase) is a set of 12 or 24 words that a wallet generates when a user creates a new account. These words are critically important since they can be used to restore a wallet if you lose access to your computer or phone. A hacker can also use the seed phrase to access your wallet and take all of your crypto.
To create a secure Bitcoin wallet you should never store the seed phrase digitally. Write down the words by hand and don’t store the phrase on your computer. By keeping your seed phrase offline, if a hacker gains access to your computer files they won’t find the seed phrase and steal your Bitcoin.
3. Make copies by hand
Always make copies of the seed phrase by hand. Don’t take a picture of the seed phrase, since we’ve seen examples of how cellphone pictures can get leaked.
In terms of how to secure a Bitcoin wallet, make several hand copies of the seed phrase and store them in different secure locations. If one fire or flood can destroy your Bitcoin wallet and all copies of the seed phrase, this is not a reliable backup system.
4. Double check the address
To guarantee Bitcoin security you should always double-check the BTC address you’re sending the coins to. Checking the address is important because there is malware that can change the address from your clipboard.
For example, you copy an address from your wallet and paste it into the Bitcoin exchange. At least, that’s what you thought you did. Instead, the malware pastes a different address into the Bitcoin exchange, the address of the hacker. If you don’t realize that a swap has taken place you may send the coins to the hacker.
5. Get your coins off the exchange
When it comes to securing your Bitcoin you should never leave your coins on an exchange. Some Bitcoin exchanges get hacked and others become insolvent. Sometimes a Bitcoin exchange owner takes all of their client’s Bitcoin and disappears!
Leaving your BTC on an exchange is one of the least secure ways to store your Bitcoin and should be avoided at all costs.
It’s Up to You
Bitcoin security is up to you. When you use Bitcoin nobody can take your money or stop you from transacting, however, that means it’s your responsibility to secure your coins. Don’t leave your crypto on an exchange, always use a non-custodial wallet like Exodus and be careful with how you store your seed phrase. Follow these simple bits of advice and your Bitcoin should be secure and always there when you need it!
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.