Current events

Bitcoin banks vulnerable to hacking

  Photo: Jerfferson Santos / Unsplash

Photo: Jerfferson Santos / Unsplash

19/07/2018
Alba Pueyo
Cryptocurrency transactions can be tracked

Bitcoin has become a prime target for hackers in recent months. In fact, only a few weeks ago a huge sum of cryptocurrency was stolen from the largest digital exchange in South Korea, Bithumb, with hackers making off with virtual currency to the value of more than €27 million. This type of criminal activity has become increasingly common since the largest theft of the currency to date took place in Japan at the beginning of the year, when €430 million worth of digital funds was stolen, affecting 240,000 clients. These thefts are based around certain unique characteristics as they involve a currency that is not represented in any physical form, falling into the category of virtual money and therefore does not benefit from the backing of any financial entity.

UOC Faculty of Computer Science, Multimedia and Telecommunications professor, Vctor Garca, points out that although Bitcoin itself is “extremely safe”, the applications that manage the currency, such as wallets or exchange websites, “are easy to hack just like any other website”.

The security of these websites depends upon the developer and, as such, the relevant level of safety is completely unrelated to Bitcoin. Garca also highlights that "although the websites that provide access to Bitcoin are probably more secure than others, they are targeted by hackers because the corresponding rewards are much more attractive than those to be gained from other popular websites which hold no interest for hackers”.

These incidents have already begun to have an impact on cryptocurrency, with prices dropping to such an extent that its value has halved in a period of just six months. Benja Angls, professor at the UOC Faculty of Law and Political Science, puts that down to the fact that the value of cryptocurrency is subject to the law of supply and the demand, which makes “it extremely volatile”. He explains how “it is not surprising that in the wake of a large-scale theft a lot of users choose to sell their Bitcoin because they are concerned it will be stolen. This increase in supply has the knock-on effect of reducing the value”.


An anonymous currency?

In addition to the Bitcoin thefts being carried out by hackers, Garca also points out that this type of virtual currency “is not as anonymous as it may seem. You could say that it is ‘pseudo-anonymous’, since instead of us using our own identity when making a transaction, we use an address extracted from a public key that acts as an alias.” He goes on to explain how blockchain, the database used for storing transaction data, is public and as such, “the value of transactions and pseudonyms of both the issuing and the receiving party can be directly viewed by anyone”.

At first glance, this may appear to represent a potential violation of user privacy, but Angls assures that, “the personal data of the parties involved remain uncompromised”. The Professor of Finance and Tax Law [JD1] added that, “while it is true that the transaction data is public, you need to keep in mind the fact that the only details published are the alphanumeric codes corresponding to the transaction, the total amount and the identifiers related to the relevant users, but never personal or protected data”.

Garca warns, however, that if a user manages to link one Bitcoin address to another at any point, then “it is even possible to track and ascertain information that users would consider to be confidential, for example, their balance or the source of their money”. The professor points out that this can happen, for example, when a company pays all its employees using a single address. “If a company pays the wages of employees A, B, C and D and the user is employee B, they would be able to view the amounts paid to the rest of the stakeholders and that way could see how their salary compares to everyone else in the company”.

The experts agree that it is difficult to predict how the virtual currency, which first appeared on the payment system scene in 2009, will behave. “The shortcomings of Bitcoin in terms of privacy is one of the reasons other cryptocurrencies have emerged, such as Zcash, Dash and Bytecoin, which focus primarily on guaranteeing user privacy in order to gain a foothold in the market,” concludes Garca.

 

#UOCexperts

Photograph of Vctor Garcia

Vctor Garcia Font

Expert in: Blockchain, cryptocurrencies, and security for sensors and smart cities.

Knowledge area: Information security.

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Photograph of Benja Angls Juanpere

Benja Angls Juanpere

Expert in: Public revenue, tax procedures, tax inspection, tax penalties, local and regional tax policy.

Knowledge area: Financial and tax law.

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