How secured are Bitcoin transactions?

Thanks to blockchain technology, cryptocurrencies are more secure than existing currencies, banks, and financial institutions. Transactions recorded in a public, distributed ledger are more transparent and harder to tamper with.

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However, there are two sides to the coin.

Cryptocurrency transactions and blockchain ledgers do have some security weaknesses, but they aren’t necessarily the fault of the underlying technology. Actually, the structure of Bitcoin and its blockchain means there are aspects to every transaction that is virtually bulletproof from a security standpoint.

Bitcoin Transactions: Decentralized and Transparent

All financial transactions are recorded on a ledger. It’s a massive database of movement, details, and records. It’s how your bank knows how much money you have in your account. But whereas banks use a centralized ledger, Bitcoin and other cryptocurrencies use a distributed ledger. A distributed ledger is more secure than a centralized ledger. In the case of a centralized ledger, one company has complete control over it—no outsiders can see or edit its contents.

But what if someone hacks the ledger? Is it possible to hack the blockchain? Can we verify transactions? How can we be sure that banks are operating their ledgers honestly? When banks are audited, can we trust those third-party auditors?

What Is a 51 Percent Attack?

While the underlying blockchain technology will keep your Bitcoin transactions secure in theory, things are a little different in practice.

For example, proponents will point to the blockchain like Bitcoin’s biggest security asset. However, consider this: the nature of Bitcoin’s blockchain means anyone can join it and become a node on the network. But if anyone can join it, how can you be sure that a hacker conglomerate won’t add enough nodes to the network to wrest control of it?

After all, “only” half of the nodes in the Bitcoin network need to agree on a change for it to be rolled out across all the synced computers. Someone with that level of control could reverse transactions, spend the same coin twice, stop other miners from creating valid blocks, or block legitimate transaction confirmations.

In other words, any entity that controls at least 51 percent of the nodes on Bitcoin’s network can control the whole blockchain.

The Risks in a Bitcoin Transaction

The wallets where you store your Bitcoins also have their own transaction risks and security issues. The weaknesses fall into two categories: private keys and hot wallets.

Private Keys: Every Bitcoin wallet has two keys, a public key, and a private key. The public key is kind of like a digital address and is what people use to send you funds. The private key is how you authenticate your transactions when you want to send funds. Quite simply, if you don’t have control of your private key, you don’t have control of your Bitcoin transaction.

Hot Wallets: Bitcoin wallets come in two forms, hot wallets, and cold wallets. Hot wallets are connected to the web and accessible online while cold wallets refer to offline storage.

Smart Contracts: It’s also worth mentioning smart contracts, which aren’t available in Bitcoin but are available in the world’s second-largest blockchain, Ethereum. Smart contracts add additional functionality to the blockchain by letting users transfer assets between each other without the need for a middleman.

How Safe Is Your Bitcoin Transaction?

And so, back to the original question: How safe is your Bitcoin transactions? As long as you follow basic crypto security principles, you should be fine. Don’t store money in hot wallets, don’t share your private keys, and don’t assume every single blockchain is immutable.