Almost 15 years after its inception, Bitcoin remains the largest and most popular digital currency in the market, competing against a whopping 25,000 other cryptocurrencies. Many attribute its massive success and the subsequent appreciation in the BTC coin price to having the first-mover advantage. Bitcoin was the first asset to introduce the public to the fascinating world of digital currencies and has since become synonymous with the crypto industry.
But while this aspect has certainly played an important role in the equation, there are several other factors that have brought their contribution to Bitcoin’s fame and undeniable appeal as an investment venue and alternate form of payment, and security is one of them.
In its early days, Bitcoin has been touted as a hack-proof asset due to the blockchain technology that serves as its backbone. This is definitely something that caught investors’ attention since safety is one of the biggest concerns to keep in mind when vetting investment options.
But that was back when Bitcoin was still a new and largely unknown financial tool and people had very little information on the topic. Now that the years have gone by and we’ve come to learn much more about the ins and outs of the flagship crypto and the industry as a whole, can we still praise Bitcoin for its infallibility?
Let’s see how safe the Bitcoin blockchain really is and if it can live up to its unhackable status.
The power of blockchain
When it comes to the underlying framework, there are two types of cryptocurrencies out there:
- Those that are built on top of blockchain – whether it’s their own independent blockchain, in which case they are categorized as coins, or the existing blockchain of a given platform, as is the case with crypto tokens.
- Those that use other types of technologies like distributed consensus ledgers managed by a group of validators to confirm transactions.
While the latter offer faster transaction times and lower fees, blockchain-based assets are generally considered safer due to their decentralized and transparent nature. Bitcoin obviously falls in the first category, being underpinned by a proprietary blockchain system.
Blockchain is a highly complex technology, serving as a ledger that is distributed across a network of participants commonly referred to as nodes. Each node in the network has to follow a certain protocol to validate transactions and add them to the blockchain. Since it resides in multiple computers and requires the consensus of all network members, the data that enters the blockchain is immutable, indelible and permanent, which guarantees an accurate and secure record of transactions.
This is an oversimplified explanation of how blockchain systems work, but the bottom line is that all the characteristics mentioned above make digital currencies like Bitcoin less susceptible to hacking.
However, the use of blockchain technology doesn’t automatically guarantee enhanced security given that not all blockchains are created equal. There are variations in the way they operate and the consensus mechanisms they employ, with some being more decentralized than others. this has numerous implications in terms of scalability, sustainability, accessibility and security. So, what exactly makes the Bitcoin blockchain so sturdy and safe?
Crypto comes from cryptography
It’s a well-known fact that Bitcoin’s blockchain applies some sort of mechanism to transfer transaction information securely between participants, but that’s where most people’s understanding of the technology ends.
Well, it’s not witchcraft and wizardry that makes it possible for these transactions to be conducted safely but the use of cryptographic hash functions. Transaction hashing employs a mathematical algorithm to encrypt data. In more simple terms, it converts plain intelligible information into unique codes that are unreadable and can only be read or deciphered with the specific key or password used to encrypt it.
This is exactly the process that takes place every time someone performs a transaction on the Bitcoin network. No one can get hold of the transaction details unless they have the right key to unlock the message.
The Proof of Work consensus mechanism
As we’ve already mentioned, blockchain networks rely on participants’ consensus to confirm and validate transactions and the Bitcoin blockchain is no different. However, there are various types of protocols in this respect and Bitcoin employs the most commonly known and time-tested consensus algorithm which also happens to be extremely secure: proof of work (PoW).
In PoW, network members compete against each other to solve challenging mathematical puzzles. The first miner to solve the problem gets to add a new block to the chain and is rewarded with freshly minted coins for expending the necessary computational effort, hence the name proof of work. Since this requires the use of high computing power to validate transactions and encourages honest conduct, PoW ensures an enhanced level of security.
Bitcoin and other assets that rely on the PoW consensus have been criticized for their lack of sustainability that derives from the high amount of energy they consume. This prompted other cryptocurrencies like Ethereum to switch to a proof of stake (PoS) mechanism instead, making their blockchains less energy intensive and therefore more sustainable. However, PoS implies a higher degree of complexity than PoW, which makes it more difficult to operate and is more vulnerable to 51% attacks.
The point is that PoW remains to this day the safest protocol, making it nearly impossible for attackers to gain control of the network and overpower miners in order to reverse transactions or steal coins.
Bottom line
Whether you’re a Bitcoin supporter or not, there’s no denying its strong suits. In terms of security, the Bitcoin blockchain is still far superior to other networks, despite the numerous technological advances that have transformed the industry over the years. And the fact that Bitcoin has been running smoothly ever since 2009, proves just how strong and resilient the network is.