Ethereum is the second most popular cryptocurrency in the world after Bitcoin itself. The fact that Ethereum can be used for various different use cases makes it more interesting than the first generation of public blockchain ecosystems. But, here comes the important question, “Is Ethereum Safe”?
The question Is Ethereum Safe itself is very vague. When people ask that question, does it mean they are asking whether the blockchain itself is safe or a specific Ethereum feature (such as its smart contract) is safe? The same question can also apply to Ethereum wallet apps. Let’s explore each one, starting with the blockchain itself.
Is Ethereum Blockchain Safe?
In its core, Ethereum blockchain works similarly to the Bitcoin blockchain. Both blockchain networks have their own mining communities where they solve computationally complex issues to add new blocks to the public ledger.
While both Ethereum and Bitcoin use proof of work, the end purpose is different. Ethereum is designed to run like a virtual machine for smart contracts, while Bitcoin’s blockchain is just used to confirm peer-to-peer transactions without any native capability to run smart contracts.
Due to how decentralized Ethereum is, the blockchain itself is actually pretty safe. Whenever you hear the stories about Ethereum hacks, most of them had nothing to do with the security of the blockchain itself. The most popular “Ethereum hack” in history was the DAO hack, which basically happened in June 2016. The DAO hack had to do with exploitation in the smart contract of the DAO and had nothing to do with the blockchain.
To be clear, it is pretty hard to manipulate a blockchain except with a 51% attack. Ethereum, being the second most famous cryptocurrency in the world, has enough decentralization, which makes it very hard to collude with each other to double-spend its network.
In conclusion, Is Ethereum blockchain safe? The answer is yes, it is extremely secure. It has never been hacked.
Is Ethereum Smart Contract Safe?
Now we get into a more “grey” area. We know Ethereum blockchain is safe, but unfortunately, smart contract is much more complex. There’s no clear answer “yes” or “no” to this question. Why? Because the smart contract is a bunch of code that is deployed on a blockchain. Different smart contracts could be issued by different developers.
Think of a “smart contract” like one of those web scripts where every developer can make one. Smart contract X might be safe, while smart contract Y might be risky. It all depends on each smart contract, just like each web script can be created by anyone who wishes to create one. This is the complexity, and this is why there is no easy yes or no answer.
The most famous Ethereum smart contract exploitation was actually the DAO hack back in June 2016. At the time, the hacker was able to send a request to the DAO smart contract to give himself ETH back multiple times before the smart contract itself could update its balance.
The DAO hack severely damaged Ethereum’s reputation at the time. The Ethereum figures themselves proposed a hard fork to revert the damage from the hack. It went successful and the “original chain” became Ethereum Classic (ETC) while the hard forked version became the mainstream Ethereum (ETH) that we know today.
Until today, you can find plenty of cases where different smart contracts get exploited. This is where smart contract audit gets important. Smart contract veteran auditors can spot flaws and problems in each deployed smart contract.
Many of them charge a large amount of fee because a critical flaw in a smart contract can be quite fatal. For example, newer ICOs and IEOs often hire independent smart contract auditors to make sure no hacker can exploit any code weakness in their smart contracts related to their tokens.
In conclusion, is Ethereum smart contract safe? Depends on each case and each smart contract. Most trusted companies hired trusted third-party auditors. Generally, their smart contracts are quite safe.
Is Ethereum Wallet Safe?
Another common question about the security of Ethereum is about its wallet applications. There are a lot of cases where people (usually casual users or newcomers) do not understand how Ethereum or other crypto wallets work.
In the majority of blockchain wallet applications (including Ethereum), one thing to keep in mind is that most wallet applications have their own backup mechanism. In Ethereum, specifically, the backup can have several different forms – from private key to backup phrase.
The biggest issue is that most people often overlook the importance of backup their backup phrase and/or private key. They often feel too lazy to write down the private key or backup phrase in another device or on a piece of paper. And when they have a problem with their device (where they store their wallet application), they have to reset the device, and suddenly the backup information is gone.
In this case, nobody can restore your wallet account because Ethereum blockchain is decentralized and no sensitive information is stored in any centralized server. And yes, even the companies themselves cannot help you. That is the nature of decentralization.
This is why it is very important to keep safe all important information in another device or piece of paper. Also, make sure not to get phished by any website. If you get phished and some random app or website asks for your recovery phrase, do not fall for such a trap. Always double-check the website URL or the application.
In conclusion, is Ethereum wallet application safe? Most likely yes, but there are a lot of phishing cases where people fall victim or where people reset their device and they lose their backup information. If you are always careful with your security, Ethereum wallet applications are mostly safe.
Once again, when people ask the question “Is Ethereum safe?” most likely they are referring to the wallet app or smart contract. As explained above, there is no simple yes or no answer to these questions. It all depends on each situation and each case but you can significantly increase your chance to not get phished or fall into wallet hacking attempt victim by staying away from shady links and websites.
As for smart contract exploitation, usually, you can rest assured that the smart contract is safe as long as it is deployed or audited by a reputable entity.
And regarding Ethereum blockchain itself, most people already know that it is quite safe as it has never been hacked in our lifetime.