Security in bitcoin

Five years later, an Australian tech entrepreneur named Craig Wright claimed that Satoshi was his alter ego, but few believed him. What are the applications of blockchain? Writing for the Huffington Post, Vala Afshar, a leading tech executive at Salesforce, explains that identity verification, shipping and supply chain logistics, manufacturing, prescription drug regulation, and many more processes can all be enhanced and better safeguarded through blockchain implementation.

Hindsight shows us how that boom failed the majority of its participants, as only the most aggressive businesses and dynamic products became mainstays in the technology industry. It could well be that hundreds, or thousands, of companies and entrepreneurs will all try to develop blockchain systems, and most will fail, leaving a select few at the head of the pack — although, to some extent, that is true of many segments of the free market.

However, according to Lexology, if the information at one end of the chain is fraudulent or incorrect, the other party has no means to override it — unlike wire transfers and card transactions, which can be stopped while pending if wrongdoing is quickly detected. Trust lies at the foundation of all human interactions, including business deals.

Bitcoin is different enough from anything that has come before that we need to think about bitcoin security in a novel way too. Security Principles The core principle in bitcoin is decentralization and it has important implications for security. A centralized model, such as a traditional bank or payment network, depends on access control and vetting to keep bad actors out of the system. By comparison, a decentralized system like bitcoin pushes the responsibility and control to the users. Because security of the network is based on proof of work, not access control, the network can be open and no encryption is required for bitcoin traffic.

Thus, the payment network has to be secured end-to-end with encryption and must ensure that no eavesdroppers or intermediaries can compromise the payment traffic, in transit or when it is stored at rest. If a bad actor gains access to the system, he can compromise current transactions and payment tokens that can be used to create new transactions. Worse, when customer data is compromised, the customers are exposed to identity theft and must take action to prevent fraudulent use of the compromised accounts.

Bitcoin is dramatically different. A bitcoin transaction authorizes only a specific value to a specific recipient and cannot be forged or modified. It does not reveal any private information, such as the identities of the parties, and cannot be used to authorize additional payments.

Therefore, a bitcoin payment network does not need to be encrypted or protected from eavesdropping. In fact, you can broadcast bitcoin transactions over an open public channel, such as unsecured WiFi or Bluetooth, with no loss of security. With that power comes responsibility for maintaining the secrecy of the keys. For most users that is not easy to do, especially on general-purpose computing devices such as Internet-connected smartphones or laptops.

Developing Bitcoin Systems Securely The most important principle for bitcoin developers is decentralization. Most developers will be familiar with centralized security models and might be tempted to apply these models to their bitcoin applications, with disastrous results. Such a design removes control from users and centralizes control over keys in a single system.

Many such systems have been hacked, with disastrous consequences for their customers. This practice, again, substitutes decentralized bitcoin security with a proprietary and centralized approach. When transactions are off blockchain, improperly secured centralized ledgers can be falsified, diverting funds and depleting reserves, unnoticed. Even if you have the funds and discipline to implement a robust security model, such a design merely replicates the fragile model of traditional financial networks, plagued by identity theft, corruption, and embezzlement.

The Root of Trust Traditional security architecture is based upon a concept called the root of trust, which is a trusted core used as the foundation for the security of the overall system or application. Security architecture is developed around the root of trust as a series of concentric circles, like layers in an onion, extending trust outward from the center. Each layer builds upon the more-trusted inner layer using access controls, digital signatures, encryption, and other security primitives.

As software systems become more complex, they are more likely to contain bugs, which make them vulnerable to security compromise. As a result, the more complex a software system becomes, the harder it is to secure. The root of trust concept ensures that most of the trust is placed within the least complex part of the system, and therefore least vulnerable, parts of the system, while more complex software is layered around it.

This security architecture is repeated at different scales, first establishing a root of trust within the hardware of a single system, then extending that root of trust through the operating system to higher-level system services, and finally across many servers layered in concentric circles of diminishing trust.

Bitcoin security architecture is different. In Bitcoin, the consensus system creates a trusted public ledger that is completely decentralized. A correctly validated blockchain uses the genesis block as the root of trust, building a chain of trust up to the current block. Bitcoin systems can and should use the blockchain as their root of trust.

When designing a complex bitcoin application that consists of services on many different systems, you should carefully examine the security architecture in order to ascertain where trust is being placed. Ultimately, the only thing that should be explicitly trusted is a fully validated blockchain. If your application explicitly or implicitly vests trust in anything but the blockchain, that should be a source of concern because it introduces vulnerability. A good method to evaluate the security architecture of your application is to consider each individual component and evaluate a hypothetical scenario where that component is completely compromised and under the control of a malicious actor.

Take each component of your application, in turn, and assess the impacts on the overall security if that component is compromised. If your application is no longer secure when components are compromised, that shows you have misplaced trust in those components.

A bitcoin application without vulnerabilities should be vulnerable only to a compromise of the bitcoin consensus mechanism, meaning that its root of trust is based on the strongest part of the bitcoin security architecture. The numerous examples of hacked bitcoin exchanges serve to underscore this point because their security architecture and design fails even under the most casual scrutiny. These centralized implementations had invested trust explicitly in numerous components outside the bitcoin blockchain, such as hot wallets, centralized ledger databases, vulnerable encryption keys, and similar schemes.

User Security Best Practices Humans have used physical security controls for thousands of years. By comparison, our experience with digital security is less than 50 years old. Modern general-purpose operating systems are not very secure and not particularly suited to storing digital money. Our computers are constantly exposed to external threats via always-on Internet connections. A single piece of rogue software, among the many thousands installed on your computer, can compromise your keyboard and files, stealing any bitcoin stored in wallet applications.

The level of computer maintenance required to keep a computer virus-free and trojan-free is beyond the skill level of all but a tiny minority of computer users. Despite decades of research and advancements in information security, digital assets are still woefully vulnerable to a determined adversary.

Even the most highly protected and restricted systems, in financial services companies, intelligence agencies, and defense contractors, are frequently breached. Bitcoin creates digital assets that have intrinsic value and can be stolen and diverted to new owners instantly and irrevocably.

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