Bitcoin: definition, hacks and frauds

Despite being around for several years, Bitcoin is suddenly all over the news. You probably already know it is something to do with money, so this article will help to explain what this cyrptocurrency is, why it matters, and how to use it safely.

What is Bitcoin?

Bitcoin works pretty much like every other currency – people can buy goods and services, and money can be traded on the foreign exchange market too. Coins are held in a digital wallet – and encrypted set of files on your computer – and act just like cash when making a payment.

There are some key differences however:

  • Bitcoin is entirely digital – there are no bank notes or coins – so all transactions take place electronically.
  • It is not managed by a central bank like the US Federal Reserve, instead its users maintain a shared control.
  • It uses heavy encryption to verify “money” is genuine, and to protect the identities of buyers and sellers making a transaction.

Why does Bitcoin matter?

Free from the control of central banks Bitcoin is, theoretically, affected less by interest rate rises, or ‘quantitative easing. This makes it very attractive to foreign currency investors.

The fact that this cryptocurrency works exactly like cash makes it very attractive to criminals. Police cannot trace a payment made with a physical £5 in a physical store – and the same is true of its transactions. This is why ransomware demands typically specify payment in Bitcoin.

Bitcoin – a valuable target for theft

Currently this digital currency is not widely used by consumers – but with the increased level of attention being given to the currency, more of us may be tempted to get on board. But there are some important security issues you need to be aware of first.

The digital wallet used to store Bitcoin acts just like your real-world wallet. So if someone steals your digital wallet from your computer, they also steal all the contents – your Bitcoins. Because it is virtually untraceable, there is little chance that the thief will be caught, which is why its theft and fraud is becoming increasingly popular.

On the 7th December, hackers were able to steal 4700 Bitcoin (worth £56 million!) from an online exchange. The criminals were able to break into an employee’s computer and steal crucial data that allowed them to make off with the money – early indications suggest that malware installed on the PC provided the necessary access.

In November, another Bitcoin banking service, Tether, was compromised. Hackers managed to steal nearly $31 million worth of Bitcoin belonging to service users from the bank’s virtual account. The bank has not released details of how the attack was carried out, but again it appears that the issue was caused by one of their computers being compromised.

How to protect yourself

Your digital wallet is key to protecting your digital money. If cybercriminals can steal your digital wallet, or trick you into handing over user names, passwords or encryption keys, you could be robbed.

In reality the principles for staying safe when using cryptocurrency are exactly the same as shopping online. Never give a stranger your Bitcoin account details. And always ensure that your computer is properly protected against hacking and malware using a security solution like Panda Gold Protection. Ready to learn more? Check out our Bitcoin archive.

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