SEOUL, South Korea — Blockchain technology can make transactions safe and secure, but crypto-currency exchanges that trade bitcoins and other virtual currencies that are based on this technology have been hacked because they are not working on secure networks, experts say. Late last month, the Tokyo-based Coincheck exchange reported a 58 billion yen ($530 million) loss of crypto currency due to hacking. The Coincheck exchange has halted trading of the stolen currency, NEM and restricted dealings in most other crypto currencies. It was the second major hacking assault on a Japanese crypto exchange after the Mt. Gox debacle in 2014. Here’s a look at the security concerns surrounding crypto currencies.
• WHAT IS BLOCKCHAIN? As its name implies, blockchain is a chain of digital “blocks” that contain records of transactions, says Curtis Miles at IBM Blockchain. Each such block is connected to those before and behind it, making it difficult to tamper with because a hacker would need to change the block containing that record and all those linked to it to avoid detection. The records on a blockchain are secured through cryptography and network participants have their own private keys that are assigned to the transactions they make and act as personal digital signatures. Any alteration will make those signatures invalid and alert others in the network to the changes. Blockchains are kept in so-called “peer-to-peer” networks that are continually updated and kept in synchronization. It would require huge amounts of computing power to access every instance of a certain blockchain and alter all its blocks at the same time.
• POOR SECURITY: While a blockchain can be secure, the exchanges that play a crucial role in increasing the amount of crypto trading, enabling bitcoin and other such currencies go mainstream, do not use the same technology, says Simon Choi, a director at anti-virus software company Hauri Inc. South Korean exchanges reportedly get poor reviews for cyber security, and officials have said those that fail to beef up such precautions will face fines. “If security on the exchanges is not secure, their currencies can be stolen,” Choi said. “If the exchanges are to play their intermediary role, they should be as safe as banks and strengthen their security.”
• RISING HACKS: According to crypto currency research firm Chainalysis, losses of bitcoin, including stealing individuals’ holdings through scams, malicious software known as ransom ware and hacks, increased at least 30 times to $95 million in 2016 from at least $3 million in 2013.