- Published: Saturday, 01 March 2014 08:31
- Written by Editor
One of the most alarming aspects of the My. Gox collapse is that so many Bitcoin enthusiasts, highly technical and knowledgeable people can lose so much money, when most certainly should have known better. The vast majority were storing Bitcoin at Mt. Gox as if it were a bank, instead of simply transacting the exchange and then immediately moving cash or Bitcoin back home for secure storage.
There is a steep mountain to climb in educating people about keeping Bitcoin secure, before moving in to the mainstream.
Not only did sophisticated users make this fundamental error, they did so in the face of months, even years of signals that Mt. Gox was far from safe.
Had this situation happened in a couple of years time, with millions more Bitcoin users, many using Mt. Gox, the fallout would have been exponentially worse, with mainstream media sensationalism and government reaction in the form of hasty and onerous regulation.
Yet even this is just the tip of the iceberg of security issues that need to be overcome technically and/or through user education if Bitcoin is to move in to the mainstream and become a de-facto global monetary system, without being attacked by the media and government constantly due to people losing Bitcoin.
So what are the main issues that need to be addressed before Bitcoin can become a world class monetary system?
The Mt. Gox debacle has highlighted the fact that many people do not appreciate the purpose of an "exchange", which is by definition is to exchange financial instruments - not to use the exchange as a bank or vehicle for speculation. For those who wish to trade Bitcoin, some forex exchanges are now offering Bitcoin trading on margin, where Bitcoin can be traded for profit or loss without ever having to actually take possession of Bitcoin.
The centralised Bitcoin exchange is almost certainly a temporary phenomena, to be replaced with decentralised, distributed peer to peer exchanges as further issues arise and centralised exchanges are regulated to oblivion. Until then considerable user education is required as to the proper use of exchanges if another Mr. Gox is to be avoided.
To most new Bitcoin users, a wallet is a wallet. But of course this is far from the truth with local computer based wallets such as Armory or Multibit, web bases off-blockchain wallets such as Coinbase and web based on-blockchain wallets such as Blockchain.info.
Users will need to understand the fundamental differences between these options as well as the relative risks and how to use them effectively. Although web based solutions are the most convenient they are also the least secure, and will come under increased abuse by hackers because, unlike an email service for example, there will be billions of dollars to be reaped which will make hackers highly motivated and no web based wallet will ever be totally secure.
The most secure is the wallet by Blockchain.info which is on-blockchain and therefore at least cannot be interfered with by governments and other entities. Local computer based wallets including smartphone are the most secure because they can be used to cold store Bitcoin, but considerable user education is required even for this due to the fact most users are non-technical, with configuring and organising wallets far beyond their computer ability.
This is without the single biggest threat to Bitcoin security and the hardest to deal with. The home computer of the average person is absolutely riddled with trojans, viruses and other malware that they remain totally oblivious to. Not only does this slow down the computer and use Internet bandwidth, these trojans are always being used for malicious purposes whether it is to steal data, delete data or harm the operation of the system in some way, key loggers to record passwords or other sensitive data such as online banking passwords, part of a botnet to launch DDOS attacks and other large scale abuse.
Billions of computers are infected by at least some malware. Most of these users have no idea how their computer becomes infected, that is has been infected and what to do if they do realise. Unfortunately most users do not even care, and will use the computer even as it slows to a stop under the sheer weight of malware blaming it on some other erroneous issue such as the need for more memory .
There is now a new wave of malware that specifically targets Bitcoin in various ways, including hacking the wallet and private keys and key loggers that record passwords, key phrases etc.
A recent Forbes article writes that there are at least 150 Bitcoin stealing trojans in the wild even now. This number will definitely increase exponentially and become more sophisticated and hidden due to the considerable rewards hackers can realise by Bitcoin theft. Such malware is even now becoming increasing pervasive, difficult to detect and efficient and escalating in number.
This is a massive threat to Bitcoin because potentially billions of people could have some or all of their Bitcoin stolen through computer trojans, which will in turn do incalculable damage to Bitcoin in the future as a mainstream monetary system. If countless billions worth of Bitcoin are being stolen in one way or another, the pressure to regulate or ban by governments will become ever stronger.
There are no immediate, easy solutions because most incidents of Bitcoin being stolen are still down to human error and negligence, the only response to which is education.
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