The popularity of cryptocurrencies is growing at a huge speed – new currencies and payment systems appear every month. Today their total number reaches several hundred. The reason for such explosive growth is quite simple – cryptocurrency and, of course, bitcoin has changed the approach both to payment systems and to money around the world.
With such high popularity, the issue of security and reliability of cryptocurrency comes to the fore. This is logical because both individuals and large corporate companies are interested in the safety of their money, whether it is paper, electronic, or, as in case of cryptocurrency, digital.
Cryptocurrency security is based on several important factors. We will look at each of them in detail.
The first and perhaps the main security factor of cryptocurrency is based on blockchain technology.
The principle of blockchain consists of three main points:
- Each transaction is recorded as a block of data.
- Each block is linked to the previous and subsequent blocks.
- Transactions form an immutable chain of blocks.
Let’s explain this in simple terms.
A blockchain can be compared to a chain. This is where the name comes from. Each link is a record of an action taken with cryptocurrency. For example, paying for a product or transferring money to another user. This action cannot be modified without breaking the entire chain. In other words, unlike conventional databases, you cannot change or delete these records, you can only add new ones. So, blockchain is an immutable digital record of actions.
The reliability of this system has allowed it to be used to improve the efficiency of monetary transactions and the exchange of information between individuals, corporations, and even the public sector.
In addition to using blockchain technology, most crypto exchanges require the use of two-factor authentication.
This is necessary to protect your data not only with a password but also with the digital device you own.
How does it work?
For example, you want to log into your account on a cryptocurrency exchange. The system asks you for a password. The password is successfully entered, but before you are allowed into your account, the system sends you a unique code in the form of a text message, email, or push notification. And only if you enter it correctly will you be able to log in to your account.
This can be inconvenient and even annoying, but it’s very important. There are many ways to get hold of your password. For example, phishing and password guessing is based on leaked data. This is more real and widespread than it seems.
Apple iCloud, AdGuard, and even GitHub users have fallen victim to such manipulations. Two-factor authentication will keep you safe from phishing. Only a real site will send you a login confirmation code, fake sites won’t be able to generate a working code.
Anonymity is considered to be one of the defining characteristics of cryptocurrency: the user does not need to provide personal data to make transactions. Thus, the bitcoin blockchain does not record the sender’s names and surnames, but the digital addresses of the wallets and the sum of the sent transactions. In this case, the identity of the creator of the first and most popular cryptocurrency, hiding under the pseudonym of Satoshi Nakamoto, is still unknown.
At the same time, experts rightly note that it is more correct to talk about the “pseudo-anonymity” of most cryptocurrencies.
The chain of transactions of any network participant can be traced and determined, for example, the frequency and volume of transfers. If the owner left his data somewhere – for example, when trading/buying in crypto exchanges or ordering at an online store or on a forum – his identity can also be established.
However, it’s still very difficult (or even impossible) for a regular user to figure out the data of a cryptocurrency user.
To summarize, we can say that cryptocurrency principles are based on serious factors that help protect the safety of funds and avoid many fraudulent schemes.