Does Bitcoin have a security problem?

By Timothy B. Lee Updated Nov 3, 2015, 10:03pm EST

Bitcoin transactions are irreversible. Once bitcoins are sent, there’s no way to get them back, even if the transaction later proves to be fraudulent.

This has created headaches for a lot of Bitcoin users. For example, there is now malware circulating on the internet that scans peoples’ hard drives looking for bitcoins. If your computer is infected with this kind of malware and you have unencrypted bitcoins stored on it, your bitcoins will be gone forever.

Fortunately, bitcoin owners can take countermeasures. One common strategy is known as “cold storage,” in which bitcoins are stored somewhere that isn’t connected to the internet. Bitcoin developers are also working on a technology called multi-signature transactions, which requires multiple people to approve a transaction before it can be submitted to the Bitcoin network. For Bitcoin to succeed as a mass-market product, Bitcoin-based business will have to develop best practices for secure handling of bitcoins — for now holding large quantities of bitcoins is quite risky, similar to carrying around a lot of cash.

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