Security strategies within the Bitcoin network are in a constant state of progression, and in this exploration, we will assess how these strategies have evolved from simple digital wallets to complex multi-signature mechanisms.
This includes an overview of the latest advancements in cryptographic technologies, such as Schnorr signatures. In simple terms, we will examine these technologies that help to provide the necessary fortifications that act as the foundation behind Bitcoin’s security framework.
We will also consider some of the major security incidents in recent years and the lessons that were learned. The overall aim of this piece is to emphasize the importance of the Bitcoin community in developing new ways to secure Bitcoin infrastructure and strengthen blockchain technology – this need is further emphasized by the impending threat of quantum computing …
How Has Bitcoin Security Has Evolved Over The Years
Since Bitcoin’s launch in 2009, the world of finance and technology has been completely transformed, moving toward ultimate financial freedom as an ambitious yet noble goal. As a decentralized cryptocurrency, Bitcoin has surged in value and become the 13th major currency in the world. However, this value has also presented a range of security challenges.
To think that, just a decade and a half ago, the most we could do with Bitcoin was to buy a pizza, it’s not hard to see how we ended up with today’s wallet standards.
Bitcoin initially relied on rather basic security solutions such as digital wallets that stored cryptographic keys to facilitate transactions. These wallets, although effective in basic terms, lacked the necessary security to prevent malware threats and cybersecurity threats which quickly became more sophisticated as the years passed – requiring innovations to keep Bitcoin safe.
Software Wallets
Early digital wallets were basic software that sat on a person’s hard drive, storing private, cryptographic keys that allowed users to access and transfer their Bitcoin.
As Bitcoin’s value grew and cybercriminals became aware of its potential, the need for better security became paramount to prevent widespread hacking and theft. Initially, digital wallets were improved with better encryption and dedicated user interfaces but this did little to stem the tide of a growing number of cyber threats.
Improving and maintaining software wallets became a somewhat futile task for developers who were forced to constantly run API penetration tests, stress 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 stored private keys offline and negated a lot of the threats that 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 Trezor.
Although hardware wallets were offline and required a pin code to access, and if lost, recovering these pin codes was a multi-faceted process. This higher level of security led to these devices growing in popularity as they were not susceptible to malware attacks, private keys never left the device, and transactions were completed within the wallet before being confirmed on the blockchain.
Multi-signature Wallets
These advanced wallets required multiple signatures or approvals from multiple users before any transactions could be executed. This drastically reduced the chance of any unauthorized access and this method was favored by businesses and organizations who regularly made large-scale Bitcoin transactions.
To make a transaction, two or more private keys are required to authorize the activity, similar to written contracts that require multiple signatures. This way, even if one private key has been hacked, the Bitcoin within the wallet still cannot be accessed.
Advancements/ Taproot and Schnorr Signatures
Taproot was a significant upgrade to the Bitcoin network that was designed to improve scalability and brought about a series of enhancements. One such enhancement was Schnorr signatures which offered multiple benefits 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, offered quicker verification times, and provided better protection against certain cyberattacks. Key aggregation was the most significant enhancement of Schnorr signatures which reduced the size of multi-sig private keys so they take up less space in a block and incur the same transaction fees as a single-party transaction.
Another important upgrade was the non-malleability feature that prevents cybercriminals from modifying a valid signature to allow them to commit malicious activity. Schnorr signatures also improve the privacy of multi-sig wallets, increasing their complexity significantly when compared to single signatures.
Preparing For Future Threats To Bitcoin
The rise of quantum computing poses a significant threat to Bitcoin, as 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 to all types of wallets becomes significant and could lead to the complete collapse of the cryptocurrency market if there is no solution.
The Bitcoin community has been busy conducting ongoing research to assist in the development of quantum-resistant cryptographic algorithms.
The hope is that the development of these advanced algorithms will provide sufficient protection against this impressive computational power but the key challenge is the successful implementation of them into the Bitcoin network. This process will be extremely complex, requiring a precise orchestration of all users, from developers to miners.
Creating algorithms that even a quantum computer cannot crack is a monumental task and is described as post-quantum cryptography. Although the development of these cutting-edge algorithms is still in its early stages, more and more developers are lending their hand to the cause and things are expected to accelerate in the next few years.
High-Profile Bitcoin Security Incidents
Let’s consider two recent Bitcoin security incidents that have caused major disruption and helped to change the way we think about securing cryptocurrency.
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 around $625m worth of cryptocurrency.
North Korean state-backed hackers, Lazarus Group are thought to be the culprits and It is believed they obtained five of the nine private keys held by transaction validators that were required to access Ronin Network’s cross-chain bridge (a decentralized application that facilitates transactions).
Binance Exchange hack – Back in October 2022, one of the world’s biggest cryptocurrency exchanges, Binance was hacked, with $570m stolen. Hackers targeted the BSC Token Hub, a cross-chain bridge, and exploited a bug in a smart contract to extract Binance coins.
As well as high-profile cases such as this, the countless number of individuals that cybercriminals have targeted is an even bigger concern. Some people can become complacent when it comes to securing their Bitcoin keys, while various platforms can employ outdated processes or need to provide more security. For example, If a wallet, platform, or application has a QR code for registration, this can be a significant security flaw, especially given that hackers have already targeted features like this.
Conclusion – What Have We Learned?
These high-level cybercrime cases show that even the most advanced and high-profile cryptocurrency institutions struggle to keep up with the latest cybercrime techniques. In addition to vast and complex blockchain networks and secondary-level, third-party applications, the resources needed to secure Bitcoin and other cryptocurrencies are substantial.
Although multi-sig wallets provide impressive protection, they are not ironclad. This is why developing advanced algorithms, such as those created to fend off quantum computing attacks is the key focus to ensure the future of cryptocurrency.Â
This is a guest post by Kiara Taylor. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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