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Safety of Bitcoins

The Bitcoin is a very unusual currency because it is decentralized and virtual. Two properties that are not always well understood and require further investigation to determine our confidence.

Reliability of the Bitcoin economy

Before discussing the structure that is running under Bitcoin, it is also important to learn about the reliability of the Bitcoin economy. Bitcoin is influenced by many factors such as trust and legality.

Bitcoins is a strong protocol

Since it is based entirely on strong cryptographic processes with not a single central point of failure, we can say that the security of this system is very strong. Tested for more than two years, Bitcoin has demonstrated its ability to resist many forms of attack. Today, Bitcoin is already considered as the most powerful distributed network on the planet.

Someone stealing your Bitcoin wallet

The greatest risk in the Bitcoin network is to lose your wallet if someone gets to steal it. This risk is virtually the same as the risk of a real wallet. It is therefore necessary to take the same precautions. Leaving a computer on which Bitcoin is installed within the reach of anyone without an antivirus is the same thing as leaving your wallet lying on the table of a restaurant.

But since it can be difficult for some people to secure their computer, it is also possible to delegate security to online banks such as Coinbase to maintain and protect your Bitcoins. As long as the password used to access your account is not saved on your computer, then you do not have as much to protect.

Protecting your wallet can be done by encrypting your wallet.This allows you to prevents a potential thief to use its contents without knowing your password. And at the same time, this security can turn against you if you forget your password. It is also very important to have a backup of your wallet.

If somebody was to consider the idea of storing a lot of value in Bitcoin, it is better to consider storing Bitcoins offline to protect against risks that comes with computers. That means saving the keys for a particular Bitcoin address on paper or usb drive, delete the keys from any computer and put the paper on one or many safe places. Once that is done, it is still possible to deposit funds using the Bitcoin address. But without the key to unlock that address, it is impossible to withdraw any funds.

Bitcoin pseudo-anonymity

Another risk of the Bitcoin system is a misunderstanding of the anonymity it offers. Many people describes Bitcoin an anonymous system, which is partially true. It should be noted that each transaction is recorded in the Bitcoin transaction log, forever. Each transaction contains the amount paid, date and addresses of Bitcoins payer and recipient. Such information by itself does not allow to identify an individual using the Bitcoin network.

However, if you publish your Bitcoin address on your website, it is possible for anyone to know that this address belongs to you. Since it is also possible to check the balance of a Bitcoin address and track all transactions in the log, such disclosure may harm your privacy. Hence the importance of adopting good practices, retaining some Bitcoin addresses for private use. And other addresses for public use. Or else, to us a Bitcoin wallet online that automatically mix balances crossing transactions between users. Services like Coinbase or Blockchain might work that way.

The 51% security hole in Bitcoin

Since the Bitcoin system is totally decentralized, it is very important that no single individual can take control of the system. However, if a rich organization found a way to buy computing power exceeding that of the entire network, it could affect the  operations of the Bitcoin network for a limited period of time and cause a variety of damage. However, such an attack would be limited only to affect the status of the service. It would not allow to close the Bitcoin network, or steal Bitcoins. Therefore, it would involve very high costs without providing gain in return.