Bitcoin Vulnerability: Are You at Risk of Losing Money?

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Are Bitcoins just another currency to add to your list? Image by schoschie

Bitcoins are at risk. According to Cornell University, there is a flaw within the system that could bring it all down. Thousands of people could be at risk of losing their money if hackers use this flaw to manipulate the Bitcoin system – is the technology currently available to exploit this vulnerability?

Bitcoins: The Japanese Cryptocurrency

‘Bitcoins’ are a virtual currency originating in Japan. Unlike real-world currency, bitcoins have no centralised bank, and they offer very secure transfer. Users can collect more coins via “mining”  by setting their computer to competition mode. These clients race all the other clients to complete the next block of the public transaction log, which maintains a list of every Bitcoin transfer ever made.

Mining for Bitcoins: How Does It Work?

If you’re looking for bitcoins, and don’t want to buy them or trade for them, you can acquire a few by adding your computer to the mining ‘race’ and solving the Bitcoin puzzles. Computers all over the world are working to keep the transaction log updated, and Bitcoins flow to whoever solves and completes the latest block first. The rest of the computers receive an alert that another computer has already solved the puzzle so they can move onto the next one. It can take significant time to complete each section, so don’t bet your house on potential Bitcoins.

Hacking Bitcoins

Users store bitcoins in electronic wallets (e-wallets), which they protect with a password, just like most online accounts. Current research by Professor Emin Gün Sirer and Dr. Ittay Eyal highlights a vulnerability in the setup – and it’s not in the e-wallet.

The vulnerability lies in the fact that everyone ‘playing’ trusts the other ‘players’ to be honest about finding a coin, since the computers are set to automatically alert the other systems involved. However, if a hacker devises an exploit to keep a client from alerting the other computers that the block is complete, the other computers will continue working on that puzzle. This allows the winners to move onto the next puzzle and get a head-start, in effect, on the next block. The group can choose when to release the fact that they completed the initial puzzle, and could effectively earn all the available Bitcoins.

 

Overcoming the Bitcoin Vulnerability

A dishonest Bitcoin ‘miner’ could affect everyone who uses the Bitcoin system, so it’s up to those who run the systems to put measures in place to make sure no one cheats. The researchers suggested that the Bitcoin administrators should limit the size of the mining groups to prevent this sort of dishonest play. At the moment, no one is taking this vulnerability seriously; for one, solving the blocks benefits all Bitcoin users. One genuine concern, however, is the potential for a dishonest ‘miner’ with the ability to introduce errors into those public logs.

References:

Eyal, I and Sirer, G. Bitcoin Is Broken. (2013). Hacking, Disturbed. Accessed November 10, 2013.

Mick, J. Inside the Mega-Hack of Bitcoin. (2011). Daily Tech. Accessed November 10, 2013.

BBC News. Bitcoin at Risk of Network Attack, Say Researchers. (2013). Accessed November 10, 2013.

Gibbs, S. Man buys $27 of bitcoin, forgets about them, finds they’re now worth $886k. (2013). Accessed November 10, 2013.

Simonite, T. What Bitcoin Is. (2011). MIT. Accessed November 10, 2013.

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