Bitcoin Hacked! Hackers steal $70M dollars! And Other Sensational Journalism…

Bitcoin…  Another story.   The mainstream media, in their usual quest for drama and ratings, is in a fever pitch about the December 5 hack of Nicehash.com that resulted in the theft over over 4736 bitcoins (~$77M dollars as of this writing).  See here for what is claimed to be the blockchain identifier for the transfer:  https://blockchain.info/address/1EnJHhq8Jq8vDuZA5ahVh6H4t6jh1mB4rq

The claim that seems the most ridiculous is that “Bitcoin is NOT safe, and is hackable!”.   This is nonsense, and it is like saying that the US dollar isn’t safe because your neighborhood Bank of America was robbed.  The fact is, nicehash.com didn’t have adequate security measures in place to prevent the hack (even with the most annoying Captcha I’ve ever used), and it probably has ruined the company.

Nicehash is was a very popular and easy to use mining service where people (including myself) can mine for Bitcoin (and other cryptocurrencies) using their PC or specialized hardware built for mining. Nicehash pays miners a “fee” for mining cryptocurrencies, and pays them on a round basis.  The nice thing was they paid in bitcoin, no matter what coin you were actually mining.  Naturally, they had to have a pretty large amount bitcoin to be able to make these payments, and they advertised it regularly on the web.

Nicehash also had a policy of not making payments to external wallets (meaning, under the control of the individual miner, and not on nicehash.com) unless they had a mining balance of .01 bitcoin or more. That’s about $170.00 and many miners had just slightly less than that balance that was stolen from the community wallet that nicehash.com paid miners from. And because Bitcoin transfers are generally not traceable to an individual, the money is gone. In short, everybody loses.

The trouble sets in when someone, somehow, found a way to get into their Bitcoin wallet and transfer the coins out to themselves.  The FBI is almost certainly involved, as well Interpol, Europol, and possibly some other European or Slovenian police agencies.

So why still invest in Bitcoin? Because Bitcoin is based on a blockchain technology that is very reliable and secure.  The concept of bitcoin and it’s blockchain is not hackable in itself. Rather, nicehash.com was hacked and lost their bitcoin.  There are different types of blockchain strategies, and some are more efficient, quick, secure, and anonymous than others.  Bitcoin was the first cryptocurrency to use this concept, and while you can “see” what address funds are transferred to and from, you cannot see “where” physically (geographically) or any other identifying information for who or where the funds were sent to or from.

So what is blockchain? Google is your friend here, as there are tons of videos and wikis about blockchain and how the different types all work.   But in a (very simplistic) nutshell, blockchain is the concept that all transactions in an ecosystem are using a distributed cryptographic ledger, and most importantly, the SAME ledger. This means that if Zack, Sally, Mike and Kim are all in a trading club and are sending money to each other, they each have a copy of the ledger, and when Mike sends Zack funds, it is recorded on all four ledgers and the ledgers all have to agree (using a cryptographic algorithm) on the transaction date/time, amount, and transferees bitcoin address. If they don’t agree, the transaction is invalid and the transaction is rejected, thereby preventing someone from just inserting a million dollar credit to their own ledger.  As you can also imagine, for something like Bitcoin that’s been logging and recording all these transactions around since 2009, that ledger can be quite large… about 2 gigabytes large… and still growing.

The cool thing is this technology can be applied to other types of transactions, such as deed transfers, contracts, information exchanges, or gaming, to name a few. Because the transaction is secure, encrypted, and shared, it is virtually “hackproof”.  What isn’t “hackproof” is anything stored online, like Nicehash’s wallet,  or any other online wallet that you yourself don’t have the private keys for and can transfer to cold storage.   Online wallets are very convenient.  Coindesk.com is very popular and has exploded in recent weeks due to the popularity and price spike for Bitcoin, but it’s generally not considered a good idea to keep large sums of Bitcoin stored there unless you have an immediate need for it.  Keep it in an offline wallet and use cold storage.

So in short, Bitcoin is just like any other fiat cash currency, the bearer holds the value, and if you don’t take steps to protect it, someone else can (and probably will) steal it.