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Advancing Bitcoin Security: The Journey from Basic Wallets to Advanced Protocols

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4 months ago

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Security strategies within the Bitcoin network are in a constant state of progression, and in this exploration, we will assess how these strategies have evolved from simple digital wallets to complex multi-signature mechanisms.

This includes an overview of the latest advancements in cryptographic technologies, such as Schnorr signatures. In simple terms, we will examine these technologies that help to provide the necessary fortifications that act as the foundation behind Bitcoin’s security framework.

We will also consider some of the major security incidents in recent years and the lessons that were learned. The overall aim of this piece is to emphasize the importance of the Bitcoin community in developing new ways to secure Bitcoin infrastructure and strengthen blockchain technology – this need is further emphasized by the impending threat of quantum computing …

How Has Bitcoin Security Has Evolved Over The Years

Since Bitcoin’s launch in 2009, the world of finance and technology has been completely transformed, moving toward ultimate financial freedom as an ambitious yet noble goal. As a decentralized cryptocurrency, Bitcoin has surged in value and become the 13th major currency in the world. However, this value has also presented a range of security challenges.

To think that, just a decade and a half ago, the most we could do with Bitcoin was to buy a pizza, it’s not hard to see how we ended up with today’s wallet standards.

Bitcoin initially relied on rather basic security solutions such as digital wallets that stored cryptographic keys to facilitate transactions. These wallets, although effective in basic terms, lacked the necessary security to prevent malware threats and cybersecurity threats which quickly became more sophisticated as the years passed – requiring innovations to keep Bitcoin safe.

Software Wallets

Early digital wallets were basic software that sat on a person’s hard drive, storing private, cryptographic keys that allowed users to access and transfer their Bitcoin.

As Bitcoin’s value grew and cybercriminals became aware of its potential, the need for better security became paramount to prevent widespread hacking and theft. Initially, digital wallets were improved with better encryption and dedicated user interfaces but this did little to stem the tide of a growing number of cyber threats.

Improving and maintaining software wallets became a somewhat futile task for developers who were forced to constantly run API penetration tests, stress tests, and various other security exercises to ensure a high level of security. As a result, a new, more practical solution was created.

Hardware Wallets

These hardware devices stored private keys offline and negated a lot of the threats that were linked to software wallets that were connected to the internet. Hardware wallets came in the form of a small device that connected to a computer via USB — two popular hardware examples were Ledger and Trezor.

Although hardware wallets were offline and required a pin code to access, and if lost, recovering these pin codes was a multi-faceted process. This higher level of security led to these devices growing in popularity as they were not susceptible to malware attacks, private keys never left the device, and transactions were completed within the wallet before being confirmed on the blockchain.

Multi-signature Wallets

These advanced wallets required multiple signatures or approvals from multiple users before any transactions could be executed. This drastically reduced the chance of any unauthorized access and this method was favored by businesses and organizations who regularly made large-scale Bitcoin transactions.

To make a transaction, two or more private keys are required to authorize the activity, similar to written contracts that require multiple signatures. This way, even if one private key has been hacked, the Bitcoin within the wallet still cannot be accessed.

Advancements/ Taproot and Schnorr Signatures

Taproot was a significant upgrade to the Bitcoin network that was designed to improve scalability and brought about a series of enhancements. One such enhancement was Schnorr signatures which offered multiple benefits over the previous Elliptic Curve Digital Signature Algorithm (ECDSA) mechanism which facilitated the generation and verification of private keys.

The key benefits of Schnorr signatures were that they allowed for smaller signature sizes, offered quicker verification times, and provided better protection against certain cyberattacks. Key aggregation was the most significant enhancement of Schnorr signatures which reduced the size of multi-sig private keys so they take up less space in a block and incur the same transaction fees as a single-party transaction.

Another important upgrade was the non-malleability feature that prevents cybercriminals from modifying a valid signature to allow them to commit malicious activity. Schnorr signatures also improve the privacy of multi-sig wallets, increasing their complexity significantly when compared to single signatures.

Preparing For Future Threats To Bitcoin

The rise of quantum computing poses a significant threat to Bitcoin, as these machines can solve extremely complex problems that standard computers cannot. This can include deciphering cryptographic keys. Should this technology become more accessible and fall into the hands of cybercriminals, the risk of unauthorized access to all types of wallets becomes significant and could lead to the complete collapse of the cryptocurrency market if there is no solution.

The Bitcoin community has been busy conducting ongoing research to assist in the development of quantum-resistant cryptographic algorithms.

The hope is that the development of these advanced algorithms will provide sufficient protection against this impressive computational power but the key challenge is the successful implementation of them into the Bitcoin network. This process will be extremely complex, requiring a precise orchestration of all users, from developers to miners.

Creating algorithms that even a quantum computer cannot crack is a monumental task and is described as post-quantum cryptography. Although the development of these cutting-edge algorithms is still in its early stages, more and more developers are lending their hand to the cause and things are expected to accelerate in the next few years.

High-Profile Bitcoin Security Incidents

Let’s consider two recent Bitcoin security incidents that have caused major disruption and helped to change the way we think about securing cryptocurrency.

Ronin Network breach – In March 2022, the highest-value cryptocurrency attack was the breach of the Ronin Network which powered the extremely popular Axie Infinity blockchain gaming platform. By breaching this network, cybercriminals stole around $625m worth of cryptocurrency.

North Korean state-backed hackers, Lazarus Group are thought to be the culprits and It is believed they obtained five of the nine private keys held by transaction validators that were required to access Ronin Network’s cross-chain bridge (a decentralized application that facilitates transactions).

Binance Exchange hack – Back in October 2022, one of the world’s biggest cryptocurrency exchanges, Binance was hacked, with $570m stolen. Hackers targeted the BSC Token Hub, a cross-chain bridge, and exploited a bug in a smart contract to extract Binance coins.

As well as high-profile cases such as this, the countless number of individuals that cybercriminals have targeted is an even bigger concern. Some people can become complacent when it comes to securing their Bitcoin keys, while various platforms can employ outdated processes or need to provide more security. For example, If a wallet, platform, or application has a QR code for registration, this can be a significant security flaw, especially given that hackers have already targeted features like this.

Conclusion – What Have We Learned?

These high-level cybercrime cases show that even the most advanced and high-profile cryptocurrency institutions struggle to keep up with the latest cybercrime techniques. In addition to vast and complex blockchain networks and secondary-level, third-party applications, the resources needed to secure Bitcoin and other cryptocurrencies are substantial.

Although multi-sig wallets provide impressive protection, they are not ironclad. This is why developing advanced algorithms, such as those created to fend off quantum computing attacks is the key focus to ensure the future of cryptocurrency. 

This is a guest post by Kiara Taylor. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.



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21 Million

No, BlackRock Can't Change Bitcoin

Published

2 days ago

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December 21, 2024

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Recently, BlackRock released an educational video explaining Bitcoin, which I thought was great—it’s amazing to see Bitcoin being discussed on such a massive platform. But, of course, Bitcoin X (Twitter) had a meltdown over one specific line in the video: “There is no guarantee that Bitcoin’s 21 million supply cap will not be changed.”

HealthRnager from Natural News claimed, “Bitcoin has become far too centralized, and now the wrong people largely control its algorithms. They are TELLING you in advance what they plan to do.”

Now, let me be clear: this is total nonsense. The controversy is overhyped, and the idea that BlackRock would—or even could—change bitcoin’s supply is laughable. The statement in their video is technically true, but it’s just a legal disclaimer. It doesn’t mean BlackRock is plotting to inflate bitcoin’s supply. And even if they were, they don’t have the power to pull it off.

Bitcoin’s 21 million cap is fundamental—it’s not up for debate. The entire Bitcoin ecosystem—miners, developers, and nodes—operates on this core principle. Without it, Bitcoin wouldn’t be Bitcoin. And while BlackRock is a financial giant and holds over 500,000 Bitcoin for its ETF, its influence over Bitcoin is practically nonexistent.

Bitcoin is a proof-of-work (PoW) system, not a proof-of-stake (PoS) system. It doesn’t matter how much bitcoin BlackRock owns; economic nodes hold the real power.

Let’s play devil’s advocate for a second. Say BlackRock tries to propose a protocol change to increase bitcoin’s supply. What happens? The vast network of nodes would simply reject it. Bitcoin’s history proves this. Remember Roger Ver and the Bitcoin Cash fork? He had significant influence and holdings, yet his version of bitcoin became irrelevant because the majority of economic actors didn’t follow him.

If Bitcoin could be controlled by a single entity like BlackRock, it would’ve failed a long time ago. The U.S. government, with its endless money printer, could easily acquire 10% of the supply if that’s all it took to control Bitcoin. But that’s not how Bitcoin works. Its decentralized nature ensures no single entity—no matter how powerful—can dictate its terms.

So, stop worrying about BlackRock “changing” Bitcoin. Their influence has hard limits. Even if they tried to push developers to change the protocol, nodes would reject it. Bitcoin’s decentralization is its greatest strength, and no one—not BlackRock, not Michael Saylor—can change that.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.



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Opinion

It’s Time to Admit It – There Are Only 2.1 Quadrillion Bitcoins

Published

2 days ago

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December 21, 2024

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If the above statement offends you, you might not have read the Bitcoin source code.

Follow Rizzo on X.

https://x.com/pete_rizzo_/

Of course, I’m sure you’ve heard that there are 21 million bitcoin – and this is true, the Bitcoin protocol allows for only “21 million bitcoin” to be created, yet these larger denominations can be subdivided into 100 million sub-units each.

Call them whatever you want, there are only 2.1 quadrillion monetary units in the protocol.

This dollars and cents differential has long been the subject of debate – in the time of Satoshi, Bitcoin’s creator, the dual conventions, Bitcoin having both a bulk denomination, and a smaller unit, was not much of a concern. There were questions about whether the software would work at all, and bitcoin were so worthless, selling them in bulk was the only rational option.

Rehashing this debate is BIP 21Q, a proposal to the Bitcoin users authored by John Carvalho, founder of Synonym, creator of the Pubky social media platform, and a tenured contributor whose work dates back to the days of the influential Bitcoin-assets collective.

In short, the BIP proposes that network actors – the various wallets and exchanges – change how Bitcoin denominations are displayed, with the smallest unit of the protocol renamed “bitcoins,” as opposed to “satoshis,” as they have been commonly called.

Here are the specifics of the BIP:

Redefinition of the Unit:

  • Internally, the smallest indivisible unit remains unchanged.
  • Historically, 1 BTC = 100,000,000 base units. Under this proposal, “1 bitcoin” equals that smallest unit.
  • What was previously referred to as “1 BTC” now corresponds to 100 million bitcoins under the new definition.

Terminology:

  • The informal terms “satoshi” or “sat” are deprecated.
  • All references, interfaces, and documentation SHOULD refer to the base integer unit simply as “bitcoin.”

Display and Formatting:

  • Applications SHOULD present values as whole integers without decimals.
  • Example:
    • Old display: 0.00010000 BTC
    • New display: 10000 BTC (or ₿10000)

Unsurprisingly, the debate around the BIP has been hostile. For one, it’s not a technical BIP, though this is not a requirement of the BIP process. Suffice to say, it’s perhaps the most general BIP that has been proposed under the BIP process to date, as it mainly deals with market conventions and user onboarding logic, not any changes to the software rules.

However, I have to say, I find the proposal compelling. Nik Hoffman, our News Editor, does not, preferring to stick to the market affirmative.

Yet, I think the proposal raises relevant questions: why should new users be forced to compute their Bitcoin balances using only decimals? Surely this has the adverse side effect of making commerce difficult – it’s simply antithetical to how people think and act today.

Also, in terms of savings, at an $100,000 BTC price, it isn’t exactly compelling to think you could be spending a whole year earning 1 BTC, though that may be.

Indeed, there have been various debates for all kinds of units – mBTC, uBTC – that play around with the dollars and cents convention, but Carvalho here is wisely skipping to the end, preferring just to rip the band-aid off. $1 would buy 1,000 bitcoins under his proposal.

What’s to like here, and I argued this during a Lugano debate on the topic in 2023, is that it keeps both the larger BTC denomination and the smaller unit, now bitcoins. They are both important, and serve different functions.

My argument then was that having a larger denomination like BTC (100 million bitcoins) is important. If there was no “BTC unit,” the press and financial media would be faced to reckon that “1 bitcoin” is still worth less than 1 cent. 

How much mainstream coverage and interest do we think there would be? I’d bet not very much.

In this way, BIP 21Q is a best-of-both-worlds approach.

The financial world, press, and media can continue championing the meteoric rise in value of “BTC,” while everyday users can get rid of decimals and complex calculations, trading the only real Bitcoin unit guaranteed to exist in perpetuity. 

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.



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Bitcoin spot ETF

We Need In-Kind Redemptions For The Spot Bitcoin ETFs

Published

2 days ago

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December 21, 2024

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Follow Frank on X.

On a recent episode of the Coinage podcast, guest SEC Commissioner Hester Peirce said that she is open to reconsidering in-kind redemptions for spot bitcoin ETFs.

(For those who aren’t familiar with the term “in-kind redemption,” it refers to the ability to withdraw the bitcoin you’ve purchased via an ETF into your own custody. In essence, it turns a bitcoin IOU into the real thing.)

This makes my heart happy, as bitcoin wasn’t designed to exist trapped within the wrappers of the old system. It was built to set us free from that system.

If Peirce can work with the incoming SEC Chair, Paul Atkins, to facilitate the approval of in-kind redemptions then the spot bitcoin ETFs can serve as some of the biggest on-ramps to Bitcoin, as Bitwise co-founder Hong Kim put it, as opposed to simply existing as speculation vehicles.

Bitcoin was born to exist in the wild. It wasn’t born to exist in a Wall Street zoo.

In-kind redemptions would allow the bitcoin currently trapped within the zoo the ability to return to its natural habitat.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.





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