Secure storage of cryptocurrencies and confidentiality
The problem of secure storage of crypto assets can be divided into three categories: loss of access to coins, theft of coins, or choosing unsafe projects for investment. Fortunately, all these problems are easily avoided. Now let`s consider all of the three issues in detail.
- Loss of cryptocurrencies
Of the 18.5 million Bitcoins mined so far, approximately 20% have been lost.
When we talk about losing coins, we are actually talking about losing access to coins, because all BTC or ETH is always in the block chain, and their location is known to everyone. The location is indicated by the public key of the coins. However, a private key is required to move them. If there is no key, there is no access.
The simplest comparison here is with a bank account: the PIN code of which was lost. However, unlike the ordinary world, cryptocurrencies do not have the ability to access or open your account. Since the system is distributed, no one can get a new key. A decentralized blockchain scheme does not have a central controller. To prevent the loss of private keys, they must be physically stored very carefully.
In addition to Bitcoin, the above can be extended to other cryptocurrencies. According to Coinmarketrate.com, there are more than 14,000 of them. Even if not everything is so transparent, the same principle applies to them. For example, there is a Monero privacy coin in your vault. Block chain transactions are not visible to anyone, but access to coins is still similar through the use of private keys.
In addition to losing private keys, it’s worth talking about hacking and stealing coins. In the case of Bitcoin, Ethereum and other large cryptocurrencies, problems with cybernetic networks usually arise not because of the block chain, but because of the exchange platforms on which coins are traded. The most famous example is Mt. Gox. Hundreds of thousands of Bitcoins were stolen from this closed cryptocurrency in 2014. The lion’s share of people lost their property altogether. It is still unclear whether this was hacking or fraud on the part of the site owner.
New decentralized solutions may not solve old problems. Recall a recent case when it became known about the theft of crypto assets, during which various coins worth more than $ 600 million were lost. The access point on the Poly Network platform was the starting point. Fortunately for the users, the hacker later decided to return everything stolen.
However, small blockchains can also fall victim to hacker attacks, the most common of which is the so-called 51% attack. In essence, this means that one party gets control over more than half of the block chain. This allows you to falsify transactions, add new coins, etc. For example, the BSV coin was attacked in this way recently. This type of attack mainly affects newer, smaller and untested networks.
In the case of Bitcoin and Ethereum, nothing like this has happened yet. Moreover, the security of these blockchains is so high that 51% of the attack is in the field of science fiction. Breaking the Bitcoin chain will require unprecedented computing power and energy. Carrying out such an operation would cost more electricity than a small country such as Sweden or Estonia consumes.
Although stock exchanges are better protected today, they should not be trusted to the end. Bitstamp, Change, Binance, Coinbase and others are managed centrally, largely depending on the rules. The recent problems with Binance illustrate this well.
Storing your assets on these platforms may seem convenient, but in fact it can end badly. In this case, the cryptographic private keys are always in the hands of the platform, not in your hands. And this means that they no longer belong to you.
- Cryptocurrency Scammers
The last category of threats in the cryptographic landscape is suspicious service providers. Even with ordinary banks, large-scale fraud and money laundering occur again and again, what can we say about the young industry. It is hoped that against the background of new laws, regulations and increased awareness of users, this problem will gradually decrease.
How to safely store your cryptocurrencie
The best protection against the loss of private keys, fraudulent trading platforms and hackers are mobile, verified wallets (applications), and a physical wallet.
The simplest versions of physical wallets are those printed on paper, but even better – a separate special encrypted memory card.
Ledger and Trezor are the most famous and simplest for the average user. On the other hand, they are not a protection against a small failure at the highest level. After such a failure, this beautiful toy can be put in a drawer, or even under grandma’s pillow. And Ledger periodically has big problems with privacy.
An excellent option for mobile crypto wallets for the average user is SpaceBot, which allows the user to exercise not only full control of their funds, but also the staking of coins such as DEL, BTT, BIP and others.
But if we have discussed the important points of storing cryptocurrencies, the issue of confidentiality remains.
Privacy in terms of blockchain is important
The vast majority of the population will certainly agree with this statement. The value of privacy increases, especially when it is limited, but usually we do not notice it, or do not think about it.
We are very used to the fact that messengers are supposedly free, and we are very attracted to social networks carried by hype. After all, no one wants to miss anything, and what ultimately happens to our data is not constantly displayed in our lives. And so the warnings are constantly ignored that the possibilities of monitoring and the possibilities of unconscious influence through knowledge (and meta) data are already huge.
One of the areas where privacy is of great importance and is actually still relatively strong is the payment flows of each person. Individuals do not want their payments to be made public in connection with things like personal medical expenses or political activities. And anyway…
In the past, the simple and anonymous use of cash was also crucial for sustained economic growth, which is why central banks almost always supported the provision of cash. In order for financial markets to operate fairly and efficiently, privacy protection is vital. Information about transactions (time, amount, identity) can be used in the form of market manipulation and total control
In modern payment systems, transaction data can be viewed by payment providers and governments, but there are certain obstacles to understanding the flow of transactions that occur around the world on a daily basis.
What many do not know: with the increasing adaptation of blockchain technology, this aspect will change dramatically. Because blockchain technology is not anonymous. It`s a pseudonym, and that’s something else entirely.
Bitcoin is the best example of the pseudonymity of blockchain technology. If you send a transaction over the Bitcoin network, a wallet is used that can be assigned a bitcoin address. Anyone (and indeed everyone) can see how much BTC is at this address, which transactions were made, when they were made and to which addresses transactions were sent. If Bitcoin were completely anonymous, this would be impossible.
Assigning a real name to a specific address on the blockchain network is indeed possible, albeit with great effort. Law enforcement agencies achieve this through in-depth analysis of network data on specific addresses and IP addresses.
Of particular interest is how individual information is distributed between different nodes in a peer-to-peer network, and which nodes receive what information and when. This allows you to draw certain conclusions, with the help of which you can eventually assign wallets to specific people.
The fact that most blockchain networks (including Bitcoin) have this transparency as a core property is also related to how network security is guaranteed. With VTS, all information, including the IP addresses of nodes, is publicly available, network security is ensured by the huge size and computing power, as well as the possibility that everyone can check everything.
Simply put, it can be compared to the costume of Iron Man, Marvel superhero Tony Stark. Although he clearly stands out from the crowd and therefore can be easily attacked (for example, one node can be subjected to a DDoS attack), his armor and weapons protect him from any damage.
This principle works, but it is not necessarily effective and, of course, does not provide reliable privacy protection. This is where, say, the best agent, Jason Bourne, appears. Instead of relying on weapons and armor, he uses the crowd at train stations for his own safety. His strategy is primarily based on not being detected, which makes it significantly more effective than Iron Man, since no complicated suit is required.
Although Bitcoin Taproot has been updated to improve privacy issues, in fact nothing has changed. And then the question arises: how to apply Born’s tactics to blockchain technology?
The answer is mixing
Mixing is a good way to maintain privacy in the blockchain field. However, mixing in this context does not mean that you should just pass your coins through one of the many mixers offered on the internet.
Firstly, such solutions are decentralized, which means it is easy to become a victim of fraud. On the other hand, they may also not achieve the desired result. Often transactions can only be hidden to a limited extent, especially for large amounts, and to create additional anonymity, it is usually recommended to take coins out of the mixer only after one or two days.
Instead, the mixing process should already be implemented at the protocol level so that the user does not suffer from any disadvantages. This means that all communication between nodes should already be anonymous by mixing, regardless of the consensus mechanism.
Simplistically speaking, Mix-Net can be considered as a black box through which pneumatic tubes pass. There are several entrances and exits in the mailbox, and you can’t figure out which route the message went as a result. Result: no one knows who communicated with whom.
In fact, Mix-Nets often switches several such black boxes one after another to further enhance security and anonymity. Technically, such a system works through complex encrypted channels with public and private keys between different nodes. However, the problem here also lies in the scalability and duration of computing key pairs for communication.
One of the solutions to these problems is “CMIX”, developed by David Chaum (who also developed eCash). Here, some of the participants are randomly selected from a pool of nodes to mix and send a batch of messages together. Although such a set of nodes sends messages, there is already a randomly selected new set of nodes for the next, so-called pre-calculation phase.
In fact, the speed of such a mixed network scales with the number of nodes, since with more nodes there are also more sets that quickly begin the pre-calculation phase, and then are ready to send new messages. If a consensus mechanism is now installed on this new type of communication protocol, a massive and fast blockchain network will be created in which all metadata is protected.
It remains to be seen whether such a network will be able to beat competitors such as Zcash, Monero and Mimblewimble, but a fundamental problem remains. In fact, such actions are too rarely aimed at ensuring confidentiality, especially in the crypto ecosystem, and this may turn into a fatal mistake in the future.