Is Bitcoin safe and reliable?
A frequently asked question is: is bitcoin safe? This is a good question, since bitcoin has only been around since 2008. Yet this system is a lot safer than a banking system. In this article we’ll explain why, by looking at how the blockchain works.
- The network itself
- Bitcoin is decentralized
- Bitcoin is a chronological chain of transactions
- Safety starts with you
- Use a hardware wallet
- Write down your backup phrase
The network itself
One of the most important properties of the Bitcoin protocol is its safety. That is where the entire transaction network is built on. Let’s elaborate.
Bitcoin is decentralized
What makes Bitcoin safer than other transaction systems is that Bitcoin is decentralized. This means that the transaction system isn’t managed by one central party, but by thousands of computers that are all part of the network. These computers are called nodes.
In addition to these nodes, the Bitcoin network consists of so-called miners. Miners are users that solve cryptographic puzzles as fast as possible in order to add transactions to the blockchain. This is the beauty of Bitcoin: it is managed by everyone.
If you want to manipulate Bitcoin’s transaction system, you will need to have access to more than half the computers that run the network. This is called a 51 percent attack. Bitcoin’s network is so extensive that it’s basically impossible to execute a 51 percent attack. Currently, the network consists of more than 9000 nodes. So someone who would want to manipulate the system, needs to access more than 4.500 computers simultaneously.
Bitcoin is a chronological chain of transactions
the safety of the system also has to do with the way the blockchain is designed . The blockchain keeps track of all bitcoin transactions. Approximately every ten minutes a new transaction block is added to the chain.
This new block is connected to the previously added block, which is in turn connected to its predecessor. Each block contains a bit of information from the previous block. This way, a chronological chain of transaction blocks is formed.
But what makes the blockchain so safe? The further back you go in the chain, the harder it becomes to manipulate it. This is because all blocks hold a piece of the previous block, so you will need to manipulate all the blocks that were added afterwards as well, whilst new blocks continue to be added. On your own you cannot possibly compete with the thousands of nodes on the network.
It is often stated that a bitcoin transaction is safe after it’s six blocks deep in the blockchain. That looks like this:
Safety starts with you
Even though the bitcoin network itself is designed to be safe, there are also some few extra measures you could take. We’ll give you a couple of tips.
Use a hardware wallet
The safest method to store you coins is using a hardware wallet. A hardware wallet encrypts the access to your bitcoins offline. This way, only you are able to access your coins.
Many people store their coins on an exchange or use an online wallet, but these methods are a lot less safe. An exchange is a central party; if it gets hacked, you could lose your coins. With an online wallet, your private keys are generated online. The fact that this happens online increases the risk of being hacked, and your coins being stolen. That’s why a hardware wallet is the best option.
Want to know how to obtain a hardware wallet?
Write down your backup phrase
Whether you use an online, software or hardware wallet, you always need to write down your backup phrase. This phrase consists of 12 to 24 randomly generated words, and function as a backup. These words are also called the seed phrase, or the recovery seed.
As long as you have your backup you will always have access to your bitcoin, even if you lose your hardware wallet or the password of your online wallet.
We strongly recommend to write down the words with pen and paper. If you save them digitally it’s easier for a potential hacker to access them.