What Will Bitcoin and Other Virtual Currencies Mean for Network Security?

Is it a preview of the future of currency, or is it just a fad? That's what many people are asking as the rise of virtual currencies continues. Most popular among them is Bitcoin, a virtual currency that was first introduced to the public in 2009. A mere half decade later, the steady growth of Bitcoin has gone on uninterrupted, with more than 13 million bitcoins in the marketplace as of September 2014. That represents more than $5 billion U.S. dollars. The appeal of Bitcoin and other similar virtual currencies is the ability to pay with a currency that is not issued by a government, leading to generally cheaper transactions. But as virtual currency has grown in popularity, so have the concerns over security.

With so much money at stake on a platform that requires online access, the need to enhance network security is driving many to maintain and update the system. Supporters of virtual currencies will often say one reason they enjoy a system like Bitcoin is the fact that it bypasses many if not all of the traditional financial systems consumers have been using for years. Under virtual currency, there is no need for banks, credit cards, or fund transfers.

Supporters claim that by avoiding these traditional systems, they also avoid the security problems the systems face. Bitcoin in particular works by online encrypted transactions that can take regular currency and convert it into the virtual kind, transferring it into a virtual wallet. Transactions are decoded after being broadcast publicly, and the network then verifies them as they are bundled into what are called blocks.

This added degree of verification does do a lot to improve the network security of Bitcoin. While outside attackers could theoretically alter transactions after they've been included in a block, it would require a tremendous amount of computing power to generate the same number of block chains. Supporters of Bitcoin say the chance of an attacker pulling off a successful heist is next to zero. That does lead to a high amount of confidence in the Bitcoin network, but it also means attackers have switched their focus to a different aspect of the virtual currency system. Security vulnerabilities do exist, and while they may not be prevalent within the Bitcoin network itself, much of the attention has shifted to virtual currency exchanges. As Bitcoin has gained in popularity significantly in the past five years, numerous exchanges have popped up to take advantage of the trend by converting traditional money into bitcoins.

Accompanying the exchanges are new attacks from hackers, and the damages can be particularly immense. One of the most well-known Bitcoin exchanges, Mt. Gox, was recently hit with a massive security breach which resulted in the exchange losing $460 million worth of bitcoins. The exchange then had to file for bankruptcy in February of 2014. Hackers have found where the weak points are with these exchanges, with some research even showing that exchanges have a 70% chance of being attacked. These breaches may not result in a large disruption of the Bitcoin network, but they're concerning enough for some virtual currency supporters to offer up appropriate responses.

To deal with the growing security vulnerabilities, supporters have proposed building Virtual Currency Security Programs, which aim to identify weaknesses in programming and establish what needs improvement. The basic framework of improved network security focuses on preventing future attacks, detecting them when they do happen, and responding quickly to eliminate them. Startups are also working to create security setups designed to make private keys for bitcoins that will protect against cyber attacks.

Other organizations are trying to establish projects intending to improve network security. One of the major ones of note allows users to adopt nodes which will increase verification of transactions and be able to spot when a suspicious change has been made.

The trend of virtual currencies is likely not a fad; we're merely seeing the beginning of what will likely turn into a common practice. Network security revolving around virtual currency exchanges still needs to improve, but once that happens, those improvements may even solve network security problems in other industries as well. Whatever the future holds, the likes of Bitcoin and other virtual currencies will surely be a major part of it.