A recent market meltdown in the broader crypto market has cryptocurrencies like Bitcoin and Ethereum suffering huge losses.
The massive meltdown was caused by the collapse of TerraUSD, one of the world's biggest stablecoins. TerraUSD traded for as low as 23 cents amid panic selling and triggered a meltdown that sent cryptocurrency values plummeting. (Related: "Stablecoins" Terra and Luna crater, exposing some cryptos as highly unstable Ponzi scams.)
Bitcoin, the biggest cryptocurrency, dropped to its lowest level since 2020 ($27,000 per Bitcoin) last May 12. It has since recovered to above the $30,000 range. Nevertheless, market volatility is one reason why people may never be able to depend on cryptocurrencies and blockchain, which is the system that runs it.
Blockchains come with basic problems. Specifically, they require stunning loads of energy to maintain and they can be hacked in spite of popular belief.
Some experts think these issues make it improbable that blockchains will ever become crucial alternatives to banks.
Cryptocurrencies are the internet's edition of money and they are special pieces of digital code that can be moved from one person to another. All cryptocurrencies utilize what is called blockchain technology, which is an account book that records transactions in code.
A blockchain permits all records of transactions to be recorded and checked, making it hard to change, hack or cheat the system. However, hackers can access blockchains in particular situations, resulting in irrecoverable monetary loss. A blockchain is merely a database that is distributed across a network of computers that was called "a glorified spreadsheet" by a New York professor.
When a blockchain transaction between two persons occurs, it is registered as a "block" of data, including information about the sender, the receiver and the number of coins. Computers in the network, which are called "nodes," review the details of the trade to make sure it is right and verify transactions.
Blockchains not really unhackable
Contrary to what many people think, blockchains are not unhackable. Blockchain networks depend on "miners" or software users who solve transaction-related algorithms to review and validate transactions.
If these miners have bad intentions, then they can attack the blockchain network. Blockchain attacks have a wide range of brilliant names, such as Goldfinger attack, Sybil attack and 51 percent attack.
"A 51 percent attack is an attack on a blockchain network where one group of miners own more than 50 percent of the network's computing power. This would be costly because the attackers would be able to now reject unwanted transactions or double-spend coins – the risk that a cryptocurrency is used twice or more," Marcus Sotiriou, an analyst at GlobalBlock, told MailOnline.
A 51 percent attack happened in 2019, when hackers took control of the Ethereum Classic blockchain. Access was employed to rewrite the chain's transaction history contributing to about $1.1 million worth of the currency being taken from other users.
Before this incident, hackers were mostly targeting centralized exchanges or CEXs, which are organizations that organize cryptocurrency trading on a huge scale. Presently, about 99 percent of all cryptocurrency transactions happen on CEXs, examples of which are Coinbase, Bitmart and Binance.
Based on data gathered by NBC News, there were more than 20 crypto exchange hacks last year where a hacker took no less than $10 million in digital currency and at least six cases where hackers stole over $100 million.
"If a cryptocurrency on a CEX is hacked the blockchain itself is not compromised; only the tokens that are on that exchange. Nevertheless, CEX hacks are worth noting as a significant security threat to cryptocurrencies," Sotiriou said.
Meanwhile, most cryptocurrencies traded larger last Sunday, May 15, providing a breath of fresh air for crypto investors. Although it wasn't a complete recovery, markets moved toward gains. Still, there's no denying that the cryptocurrency market is volatile as it went as high as $3 trillion and fell to as low as $1.2 trillion in the last six months.
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