Security strategies within the Bitcoin network are constantly evolving. In this study, we look at how these strategies have evolved from simple digital wallets to complex multi-signature mechanisms.
This includes an overview of the latest developments in cryptographic technologies, such as Schnorr signaturesSimply put, we will explore these technologies that help provide the necessary fortifications that serve as the foundation for Bitcoin’s security framework.
We will also discuss some of the largest security incidents of recent years and the lessons learned. The overall goal of this piece is to highlight the importance of the Bitcoin community in developing new ways to secure the Bitcoin infrastructure and strengthen blockchain technology – a need that is further emphasized by the looming threat of quantum computing…
How has Bitcoin security evolved over the years?
Since the launch of Bitcoin in 2009, the world of finance and technology has been completely transformed, towards ultimate financial freedom as an ambitious but noble goal. As a decentralized cryptocurrency, Bitcoin has increased in value and become the 13th most important currency in the worldHowever, this value has also brought with it some security challenges.
When you consider that just fifteen years ago, the most we could do with Bitcoin was buy a pizzait’s not hard to understand how we arrived at today’s wallet standards.
Bitcoin initially relied on fairly basic security solutions such as digital wallets that stored cryptographic keys to facilitate transactions. These wallets, while effective in basic terms, lacked the necessary security to prevent malware and cybersecurity threats that have become increasingly sophisticated over the years – requiring innovations to keep Bitcoin safe.
Software wallets
The first digital wallets were basic software that resided on a person’s hard drive and stored data. private, cryptographic keys which allowed users to access and transfer their Bitcoin.
As Bitcoin’s value grew and cybercriminals realized its potential, the need for better security became paramount to prevent widespread hacking and theft. Initially, digital wallets were improved with better encryption and special user interfaces, but this did little to stem the tide of a growing number of cyberthreats.
Improving and maintaining software wallets became a rather pointless task for developers who were forced to constantly API Penetration Testingstress tests and various other security exercises to ensure a high level of security. As a result, a new, more practical solution was created.
Hardware wallets
These hardware devices store private keys offline and many of the threats debunked which were linked to software wallets that were connected to the internet. Hardware wallets came in the form of a small device that connected to a computer via USB — two popular hardware examples were ledger And Safe.
While hardware wallets were offline and requires a PIN code to accessand if lost, recovering these PINs was a multi-faceted process. This higher level of security led to the growing popularity of these devices, as they were not susceptible to malware attacks, private keys never left the device, and transactions were completed in the wallet before being confirmed on the blockchain.
Multi-Signature Wallets
These advanced wallets multiple signatures required or approvals from multiple users before transactions could be made. This drastically reduced the chance of unauthorized access and was preferred by companies and organizations that regularly made large-scale Bitcoin transactions.
To make a transaction, two or more private keys are needed to authorize the activity, similar to written contracts that require multiple signatures. This way, even if one private key is compromised, the Bitcoin in the wallet is still inaccessible.
Progress/ Taproot and Schnorr Signatures
Taproot was an important upgrade to the Bitcoin network which was designed to improve scalability and brought a series of improvements. One of those improvements was Schnorr signatures, which offered several advantages over the previous Elliptic Curve Digital Signature Algorithm (ECDSA) mechanism which facilitated the generation and verification of private keys.
The Key Benefits of Schnorr Signatures were that they allowed for smaller signature sizes, provided faster verification times, and offered better protection against certain cyberattacks. Key aggregation was the most significant improvement to Schnorr signatures, which reduced the size of multi-sig private keys so that they take up less space in a block and incur the same transaction fees as a single-party transaction.
Another major upgrade was the non-deformable property that prevents cybercriminals from modifying a valid signature to perform malicious activities. Schnorr signatures improving the privacy of multi-sig walletswhich significantly increases its complexity compared to single signatures.
Preparing for Future Threats to Bitcoin
The rise of quantum computing poses a major threat to Bitcoinbecause these machines can solve extremely complex problems that standard computers cannot. This can include deciphering cryptographic keys. Should this technology become more accessible and fall into the hands of cybercriminals, the risk of unauthorized access for all types of wallets becomes significant and could lead to the complete collapse of the crypto market if not resolved.
The Bitcoin community is busy conducting ongoing research to help with the development of quantum-resistant cryptographic algorithms.
The hope is that the development of these advanced algorithms will provide sufficient protection against this impressive computing power, but the main challenge is their successful implementation in the Bitcoin network. This process will be extremely complex and requires careful orchestration of all users, from developers to miners.
Creating algorithms that even a quantum computer cannot crack is a monumental task and has been described as post-quantum cryptographyAlthough the development of these advanced algorithms is still in its early stages, more and more developers are getting involved and things are expected to accelerate in the coming years.
Major Bitcoin Security Incidents
Let’s take a look at two recent Bitcoin security incidents that have caused major disruptions and changed our perspective on securing cryptocurrencies.
Ronin Network Breach – In March 2022, the highest-value cryptocurrency attack was the breach of the Ronin Network, which powered the extremely popular Axie Infinity blockchain gaming platform. By breaching this network, Cybercriminals stole approximately $625 million worth of cryptocurrency.
North Korean state hackers Lazarus Group are believed to be the perpetrators. They reportedly obtained five of the nine private keys to transaction validators needed to access Ronin Network. cross chain bridge (a decentralized application that facilitates transactions).
Binance Exchange Hack – In October 2022, one of the world’s largest cryptocurrency exchanges, Binance has been hackedwith $570m stolen. Hackers targeted the BSC Token Hub, a cross-chain bridge, and exploited a bug in a smart contract to mine Binance coins.
In addition to high profile cases like this, the countless individuals that cybercriminals have targeted is an even greater concern. Some people can become complacent when it comes to securing their Bitcoin keyswhile different platforms may use outdated processes or need to provide more security. For example, if a wallet, platform or application has a QR code for registration, this could be a significant security flaw, especially since hackers have already targeted such features.
Conclusion – What have we learned?
These high-level cybercrime cases show that even the most advanced and high-profile cryptocurrency institutions are struggling to keep pace with the latest cybercrime techniques. In addition to the vast and complex blockchain networks and secondary level applications, from third partiesThe resources required to secure Bitcoin and other cryptocurrencies are significant.
While multi-sig wallets offer impressive protection, they are not ironclad. That’s why developing advanced algorithms, like those created to thwart quantum computing attacks, is the main focus for securing the future of cryptocurrency.
This is a guest post by Kiara Taylor. The opinions expressed are entirely her own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.